Assume That the Marginal Propensity to Consume Is 0

question 252

Multiple Choice

Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If real GDP is $700 billion:

• A)there is an inflationary gap.
• B)there is a recessionary gap.
• C)the economy is in long-run equilibrium.
• D)government transfers should be decreased.

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Definitions:

Company's Liquidity

The ability of a company to meet its short-term financial obligations by quickly converting assets into cash without significant loss.

Gross Margin Ratio

A financial metric that measures a company's financial health by dividing its gross profit by net sales, indicating the percentage of sales revenue remaining after deducting the cost of goods sold.

Profitability

The ability of a business to generate earnings compared to its expenses and other costs incurred during a specific period.

Operating Cycle

The duration of time it takes for a company to buy inventory, sell it as finished goods, and collect cash from the sales.