Suppose the Economy Is Operating at an Output of $4,000

question 4

Multiple Choice

Suppose the economy is operating at an output of $4,000 billion. Assume furthermore that potential output is $5,000 billion and the marginal propensity to consume is 0.75. _____ would close this recessionary gap.

• A)A $25 billion increase in government spending
• B)A $25 billion increase in taxes
• C)A $250 billion increase in government spending
• D)A $1,000 billion increase in government spending

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Definitions:

Depreciation Expense

Apportioning a physical asset’s cost over its estimated useful life.

Straight-Line Method

The straight-line method is a technique of allocating an asset's cost evenly throughout its useful life, commonly used for depreciation and amortization calculations.

Salvage Value

The approximated market price of an asset upon completing its useful life.

Depreciation Expense

The allocated portion of the cost of a tangible asset over its useful life, reflecting wear and tear or obsolescence.