In the Simple Aggregate Expenditure Model Where All Components of Aggregate

question 203

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 $500 billion, equilibrium real GDP increases by $2,500 billion. Which of the following statements is true?

• A) The MPS = 0.8.
• B) The MPC = 0.2
• C) The MPS = 0.2.
• D) The MPC = 5.

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Definitions:

Machine Hour

A unit of measurement that represents an hour of operation of a machine or equipment.

Fixed Costs

Expenses that do not change in proportion to the level of production or sales, such as rent and salaries.

High-low Method

A technique used in accounting and finance to estimate fixed and variable costs based on the highest and lowest levels of activity.

Variable Electrical Costs

Costs associated with electricity that vary depending on the amount of usage or consumption over a period.