Use the Aggregate Expenditures Model and Assume the Marginal Propensity

question 117

Multiple Choice

Use the aggregate expenditures model and assume the marginal propensity to consume (MPC) is 0.80. An increase in government spending of $1 billion would result in an increase in GDP of:

• A)$0.
• B)$0.8 billion.
• C)$1.0 billion.
• D)$5.0 billion.
• E)$8.0 billion.

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Definitions:

Closing Entries

Journal entries made at the end of an accounting period to transfer the balances of temporary accounts to permanent accounts.

Merchandising Company

A business that purchases finished goods for resale, making a profit on the difference between the buying and selling prices.

Service Company

A business that provides intangible products (services) to consumers, as opposed to selling physical goods.

Inventory Shrinkage

The loss of products between purchase and sale due to theft, damage, or errors, resulting in lower inventory levels than recorded.