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.

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Definitions:

Leading Economic Indicators

Variables that predict, or lead to, a recession or recovery; examples include consumer confidence, stock market prices, business investment, and big-ticket purchases, such as automobiles and homes.

Business Cycle

The natural fluctuation of the economy between periods of expansion (growth) and contraction (recession).

Price Level

The average of current prices across the entire spectrum of goods and services produced in the economy, often measured by a price index.

Risk-Free Rate

The rate of return on an investment with no risk of financial loss, typically represented by the yield on government bonds.