If the Income-Expenditure Multiplier Equals 4 and a 1 Percentage

question 31

Multiple Choice

If the income-expenditure multiplier equals 4 and a 1 percentage point increase in the real interest rate reduces autonomous spending by 100 units, then a 1,000 unit recessionary gap can be eliminated by ______ the real interest rate by ______ percentage points.

• A) increasing; 10.0
• B) increasing; 4.0
• C) increasing; 2.5
• D) decreasing; 2.5

---

Definitions:

Marginal Benefit

The additional benefit derived from producing one more unit of a good or service.

Accounting Profit

The total revenue of a business minus its explicit costs; essentially the net income reported on the financial statements.

Economic Profit

The difference between the total revenue received by a business and the total costs, including both explicit and implicit costs.

Overhead

Ongoing business expenses not directly attributed to creating a product or service.