If Spending Decreases by $400, and GDP Decreases by $1,000

question 120

Multiple Choice

If spending decreases by $400, and GDP decreases by $1,000 as a result, what must the MPC be?

• A) 0.6
• B) 0.75
• C) 4
• D) 2.5

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Definitions:

Fixed Overhead

Costs that remain constant regardless of the level of production or sales activities, such as rent, salaries, and insurance.

Period Cost

Any cost that cannot be capitalized into prepaid expenses, inventory, or fixed assets. A non-manufacturing cost that is expensed in the period in which it is incurred.

Special Order

A special order refers to a one-time or unusual request from a customer that can require unique production or ordering requirements outside of normal operations.

Product Costs

Costs directly associated with the production of goods or services, including direct materials, direct labor, and manufacturing overhead.