If the Economy Is Currently at Equilibrium at $1 Trillion

question 118

Multiple Choice

If the economy is currently at equilibrium at $1 trillion and the MPC is 0.6,a $100 decrease in government purchases of goods and services will result in a new equilibrium at

• A)$600 billion
• B)$400 billion
• C)$750 billion
• D)$1.4 trillion
• E)$1.6 trillion

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Definitions:

Consumption

The use of goods and services by households. It is an important component of GDP and a direct indicator of consumer spending behavior.

Income

Earnings received by a person or entity, typically through work, investments, or business ventures.

Interest Rate

The amount charged by lenders to borrowers for the use of money, expressed as a percentage of the principal.

Present Value

The value today of a sum of money or cash flows expected in the future, discounted by a specific rate of return.