If an Initial Increase in Government Spending of $100 Billion

question 117

Multiple Choice

If an initial increase in government spending of $100 billion leads to a total increase of $400 billion in income,the marginal propensity to consume in the economy is:

• A) 0.4.
• B) -0.8.
• C) 0.5.
• D) 0.75.
• E) 0.8.

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Definitions:

Interest Expense

The cost incurred by an entity for borrowed funds, which is reported on the income statement.

Pre-Acquisition Dividend

Dividends declared by a subsidiary prior to being acquired or controlled by the parent company.

Final Dividend

The last dividend payment made by a company to its shareholders for a fiscal year, after the company's final annual earnings are known.

Tax-Effect Adjustment

Adjustments made to account for the tax implications of differences between accounting and tax treatments of items, ensuring financial statements reflect future tax liabilities or assets.