If the Multiplier Is 2 and Investment Spending Falls by $5

question 260

Multiple Choice

If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income

• A) decreases by $5 billion.
• B) decreases by $10 billion.
• C) increases by $2.5 billion.
• D) increases by $10 billion.

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Definitions:

Overhead Allocation Bases

Criteria or measures used to distribute indirect costs to different products, services, or departments.

Direct Labour Hours

The total hours worked by employees that are directly involved in the manufacturing process.

ABC System

Activity-Based Costing System; a method of allocating overhead and indirect costs to specific products or services based on the activities they require.

Traditional Cost Systems

Traditional cost systems allocate overhead costs based on measures like direct labour hours or machine hours, often resulting in less accurate product costing.