Figure 85 Alt Text for Figure 8

question 85

Multiple Choice

Figure 8.5 Alt text for Figure 8.5: In figure 8.5, a graph comparing real GDP and real aggregate expenditure.
Long description for Figure 8.5: The x-axis is labelled, real GDP, Y (billions of 2007 dollars) with values GDP1 and GDP2 marked.The y-axis is labelled, real aggregate expenditure, AE (billions of 2007 dollars) .Line AE1 begins a little less than half way along the x-axis and slopes up to the end of the x-axis.Line AE2 begins at a point half way along the x-axis and slopes up to the top right corner.Line AE2 is to the left of line AE1 and is on a similar path as line AE1.Line Y = AE, originates at the vertex and slopes up to the top right corner.Line Y = AE meets line AE1 at point K, half way along both lines.Line Y = AE meets the line AE2 at point N, plotted close to the right end of line AE2.Point J is marked a little less than half way along line AE1, to the left of point K.Point L is plotted close to the right end of line AE1, to the right of point K.Points K, L, and N are connected to their respective coordinates, GDP1 and GDP2, on the x-axis with dotted lines.
-Refer to Figure 8.5.Suppose that government spending increases, shifting up the aggregate expenditure line.GDP increases from GDP₁ to GDP₂, and this amount is $400 billion.If the MPC is 0.75, then what is the distance between N and L or by how much did government spending change?

• A)$10 billion
• B)$50 billion
• C)$100 billion
• D)$200 billion
• E)$300 billion

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Definitions:

Stock Dividend

A company rewards its shareholders with extra shares, foregoing the option to distribute cash.

Depreciation Expense

Allocating the price of a tangible asset consistently throughout its expected lifespan.

Prior Period Adjustment

An amendment to the financial statements, correcting errors from previously reported periods or adjustments due to changes in accounting policies.

Retained Earnings

The portion of a company's profit that is held back and not distributed to shareholders as dividends, usually used for reinvestment in the business or to pay off debt.