Exhibit 20A-3  Macro AD/AS Model

question 92

Multiple Choice

Exhibit 20A-3  Macro AD/AS Model
As shown in Exhibit 20A-3, assume the marginal propensity to consume MPC equals 0.75. Using discretionary fiscal policy, federal government spending should be ____ in order to restore the economy from E₁ to full employment.

• A) increased by $1 trillion
• B) increased by $2 trillion
• C) decreased by $2 trillion
• D) increased by $.50 trillion
• E) increased by $.80 trillion

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Definitions:

Earnings Per Share

A financial indicator that divides a company's profit by the outstanding shares of its common stock, measuring the company's profitability per share.

Fixed Assets

Long-term tangible assets that a firm uses in its operations and that are not expected to be consumed or converted into cash within a year.

Long-Term Liabilities

Obligations a company is due to pay after one year or more, such as bonds payable, long-term loans, and pension obligations.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting its liabilities, representing the owners' share of the company.