When an Economy Is Operating Well Below Its Full-Employment Capacity

question 5

Multiple Choice

When an economy is operating well below its full-employment capacity and the marginal propensity to consume is 3/4, a $10 billion increase in investment will cause the equilibrium income to rise by

• A) $5 billion.
• B) $10 billion.
• C) $20 billion.
• D) $40 billion.

---

Definitions:

Discontinued Operations

Components of a company that have been sold or terminated, reported separately in financial statements for clarity.

Continuing Operations

Refers to the parts of a business expected to continue operating and generating revenue over the long term, excluding any discontinued operations.

Dividends

Payments made by a corporation to its shareholder members, usually derived from the company's earnings.

Investing Activities

Cash flow activities that include (a) purchasing and disposing of investments and property, plant, and equipment using cash and (b) lending money and collecting the loans.