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.

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Definitions:

Debt-to-equity Ratio

This proportion demonstrates the relative use of debt and shareholders' equity in the capital funding of a company's assets.

Receivable Turnover

A financial metric indicating how efficiently a company collects cash from credit sales by measuring the number of times average accounts receivable are collected over a period.

Inventory Turnover

A ratio showing how many times a company's inventory is sold and replaced over a period, indicating efficiency in managing stock.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term and long-term obligations, calculated as current assets divided by current liabilities.