Suppose Government Purchases Increase by $100 Billion, That There Is

question 9

Multiple Choice

Suppose government purchases increase by $100 billion, that there is no crowding-out effect, and that the marginal propensity to consume is 0.9.What is the total effect of this increase in government purchases?

• A)$90 billion
• B)$111 billion
• C)$900 billion
• D)$1000 billion

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Definitions:

Subordination Clauses

Provisions in a contract that determine the ranking of claims in the event of a debtor default, making some debts subordinate to others.

Bond Indentures

A legal and binding agreement that outlines the specific promises made to bondholders, including the terms of the bond, such as its maturity date, timing of interest payments, and method of interest calculation.

Senior Creditors

Creditors who have priority over other creditors for the repayment of debts, typically in the event of a bankruptcy or liquidation.

Yield To Maturity

The total return anticipated on a bond if the bond is held until it matures, considering all interest payments and the principal repayment.