In the Simple Aggregate Expenditure Model Where All Components of Aggregate

question 213

Multiple Choice

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, suppose when autonomous aggregate expenditures rise by $1,000 billion, equilibrium real GDP increases by $2,500 billion. Which of the following statements is true?

• A) The multiplier is 2.5.
• B) The MPC = 0.5.
• C) The MPC = 0.75.
• D) The MPC = 0.8.

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Definitions:

Variable Costing

Variable costing is an accounting method that only considers variable costs, which change with production levels, in the cost of goods sold and excludes fixed manufacturing overhead.

Income Statement

A financial statement that shows a company's revenues, expenses, and profits over a period of time.

Absorption Costing

An approach to pricing that involves including every manufacturing expense - like direct materials, direct labor, as well as fixed and variable overheads - in calculating the cost of a product.

Income Statement

A financial statement that reports a company’s financial performance over a specific accounting period.