If the MPC Is 0

question 26

Multiple Choice

If the MPC is 0.5 and the tax rate is 10%,a $500 increase in autonomous government purchases will increase equilibrium income by

• A) $225.
• B) $280.
• C) $910.
• D) $1110.

---

Definitions:

Allowance Method

The Allowance Method is an accounting technique that estimates and accounts for doubtful accounts, reducing the accounts receivable to its net realizable value.

Going Concern Assumption

An accounting principle assuming that an entity will continue to operate for the foreseeable future.

Direct Method

An approach to preparing the cash flow statement where actual cash flows from operating activities are listed.

Lower of Cost

An accounting rule where inventory is recorded at the lower of either its acquisition cost or market value at reporting time.