If the MPC Is 3/4 Then the Multiplier Is

question 319

Multiple Choice

If the MPC is 3/4 then the multiplier is

• A)4, so a $100 increase in government spending increases aggregate demand by $400.
• B)4, so a $100 increase in government spending increases output by $400.
• C)4/3, so a $100 increase in government spending increases aggregate demand by $400/3.
• D)4/3, so a $100 increase in government spending increases output by $400/3.

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Definitions:

Purchases

The total amount expended on goods or services intended for use in the business process.

LIFO

"Last In, First Out," an inventory valuation method where the most recently produced or purchased items are the first to be expensed.

Cost Flow Assumption

An accounting principle that determines how costs are allocated to inventory and cost of goods sold, examples include FIFO, LIFO, and average cost methods.

Cost of Goods Sold

The immediate expenses related to the creation of products that a company sells.