If the Change in Autonomous Investment Equals $1 Trillion and the Change

question 458

True/False

If the change in autonomous investment equals $1 trillion and the change in real GDP equals $4 trillion, the multiplier equals 1/4.

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Definitions:

Sunk Costs

Costs that have already been incurred and cannot be recovered.

Incremental Cash Flow

The additional cash flow a company receives from undertaking a new project, after accounting for the expenses involved in the project.

Variable Costs

Costs that change in proportion to the level of production or sales activities, such as materials and labor.

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance premiums.