If the Government Increases Defense Spending by $1 Billion and the MPC

question 124

Multiple Choice

If the government increases defense spending by $1 billion and the MPC is 0.8, how much additional spending will occur in the third "round" of spending?

• A)$640 million
• B)$800 million
• C)$1 billion
• D)$1.8 billion

---

Definitions:

Replacement Cost

The cost to replace an asset with another of similar nature and quality in its current condition.

Current Revenues

Income that a company receives from its normal business activities, typically from the sale of goods and services, within the current accounting period.

LIFO Reserve

The difference in the value of inventory under the Last-In-First-Out (LIFO) method compared to the First-In-First-Out (FIFO) method, reflecting the impact of inflation on inventory costs.

Disclosure

The action of making new or important information known, especially relating to business operations, financial conditions, or regulatory compliance.