Suppose That Investment Spending Increases by $50 Billion and as a Result

question 45

Multiple Choice

Suppose that investment spending increases by $50 billion and as a result the equilibrium income increases by $200 billion. The value of the marginal propensity to consume is:

• A) 0.8.
• B) 0.4.
• C) 0.75.
• D) 4.

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Definitions:

Overhead Volume Variance

The difference between the budgeted overhead costs and the actual costs incurred, due to changes in the level of production or activity.

Fixed Overhead

Fixed Overhead refers to the indirect costs of production that do not vary with the volume of production, such as salaries of managers, rent of factory, and depreciation of equipment.

Standard Cost System

A system of accounting that uses predetermined costs for calculating variances and tracking operational performance.

Job Order Cost System

A cost accounting system in which costs are assigned to each job or batch.