If the MPC Is 0

question 23

Multiple Choice

If the MPC is 0.8, and the government spends an additional $100 billion, the overall effect on GDP will be _______ billion.

• A) $400
• B) $500
• C) $120
• D) $180

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Definitions:

STRIPPED Cash Flows

Cash flows that are separated or "stripped" from an asset for investment or valuation purposes, often for the construction of zero-coupon bonds.

Arbitrage

The practice of taking advantage of price differences in different markets by buying low in one and selling high in another.

Yield Curve

A graph showing the relationship between the yields of various debt securities of the same credit quality but different maturities.

Expectations Hypothesis

A theory in finance that explains the structure of interest rates by suggesting that the long-term rate can be determined by current and future expected short-term interest rates.