What Effect Would a $10 Billion Decrease in Government Purchases

question 59

Multiple Choice

What effect would a $10 billion decrease in government purchases have on AD?

• A)It would decrease AD by $4 billion if MPC = 0.4.
• B)It would increase AD by $50 billion if MPC = 0.8.
• C)It would increase AD by $20 billion if MPC = 0.5.
• D)It would decrease AD by $30 billion if MPC = 2/3.

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Definitions:

Direct Materials Used

The raw materials directly used in the production of goods, traceable to the end product.

Direct Labor

Labor provided by employees who are directly involved in the production of goods or the delivery of services, forming an essential part of the production process.

Manufacturing Overhead

All indirect costs associated with the production of goods, such as utilities, maintenance, and salaries not directly tied to specific units.

Cost of Goods Manufactured

The total production cost of goods completed during an accounting period.