Suppose the Marginal Propensity to Consume (MPC)is 0

question 370

Multiple Choice

Suppose the marginal propensity to consume (MPC) is 0.8 and there is a $2,000 increase in autonomous consumption. Given this information, real GDP will increase by

• A)$1,600.
• B)$2,000.
• C)$2,500.
• D)$10,000.

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Definitions:

Maturity

The fixed date in the future at which the principal amount of a bond or other financial instrument is scheduled to be repaid.

STRIPPED Cash Flows

Cash flows from an investment that have had certain elements removed, often related to interest or taxes, to reflect the underlying performance more accurately.

Arbitrage

The practice of profiting from price differences of the same asset in different markets by simultaneously buying and selling it.

Treasury Bond

A long-term government debt security with a fixed interest rate, considered low-risk.