If Policy Makers Want to Decrease Real GDP by $100

question 1

Multiple Choice

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should _____ transfer payments by _____ $40 billion.

• A)increase; less than
• B)increase; more than
• C)decrease; less than
• D)decrease; more than

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Definitions:

Depreciation Expense

Expense allocated for the reduction in value of tangible assets over their useful life for accounting and tax purposes.

Estimated Residual Value

The anticipated value of an asset at the end of its useful life.

Obsolescence

The process through which a product or technology becomes outdated and no longer used, often due to advancements or changes in consumer preferences.

Depletion

An accounting method used to allocate the cost of extracting natural resources, such as minerals or timber, from the earth, reflecting the consumption of the resource over time.