Suppose the Marginal Propensity to Consume Is 0

question 14

Multiple Choice

Suppose the marginal propensity to consume is 0.75.If government purchases increase by $100 billion and the extra expenditure is financed with a net tax of $100 billion,by how much will output change?

• A) -$400 billion
• B) $100 billion
• C) $400 billion
• D) $0
• E) -$100 billion

---

Definitions:

LIFO Method

An inventory management and valuation approach where the last items placed in inventory are the first ones sold.

GAAP

Generally Accepted Accounting Principles, a set of accounting standards and procedures used in the United States to ensure financial statements are consistent and transparent.

IFRS

International Financial Reporting Standards - a set of accounting guidelines that provide the basis for cross-border financial reporting.

Specific Identification

An inventory valuation method in which the cost of each specific item in inventory is tracked and used to calculate cost of goods sold.