Assume That the MPC Is 0

question 96

Multiple Choice

Assume that the MPC is 0.8. Assume that there is a multiplier effect and that the total crowding-out effect is $8 billion. How will an increase in government purchases of $10 billion shift aggregate demand?

• A) It will shift aggregate demand left by $2 billion.
• B) It will shift aggregate demand left by $42 billion.
• C) It will shift aggregate demand right by $2 billion.
• D) It will shift aggregate demand right by $42 billion.

Calculate spending variances for different categories of costs.

Apply flexible budget formulas to determine expected costs based on planned activity levels.

Interpret the impact of activity level changes on budgeted costs.

Analyze the differences between actual and budgeted costs.

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Definitions:

Taxable Income

The sum of earnings that determines the tax liability of a person or business to the government, once all deductions and exemptions have been applied.

Charitable Contribution

A donation or gift to a non-profit organization or charity that is often tax deductible for the donor.

Net Income

The amount of money left after all expenses, taxes, and deductions have been subtracted from a company's total revenue.

Separately Stated Items

Items on a partnership or S corporation tax return that are passed through to the owners or shareholders separately from ordinary income.