Use the Aggregate Expenditures Model and Assume the Marginal Propensity

question 181

Multiple Choice

Use the aggregate expenditures model and assume the marginal propensity to consume (MPC) is 0.90. A decrease in government spending of $1 billion would result in a decrease in GDP of:

• A)$0.
• B)$0.9 billion.
• C)$1.0 billion.
• D)$9.0 billion.
• E)$10.0 billion.

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Definitions:

Matching Principle

An accounting principle that dictates that expenses should be recognized in the period in which the related revenues are earned, helping to ensure that financial statements are accurate.

Expenses

The outflows or using up of assets as part of operations of a business to generate revenue.

Revenue

The total amount of money generated by the sale of goods or services related to a company's primary operations during a specific period.

Gains Or Losses

The financial results from selling assets or incurring liabilities, measured as the difference between the sale proceeds and the value recorded in accounts.