To Achieve a $500 Billion Increase in AD, If the MPC

question 36

Multiple Choice

To achieve a $500 billion increase in AD, if the MPC is 0.8, what increase in government purchases would be called for?

• A)​$625 billion
• B)​$500 billion
• C)​$400 billion
• D)​$100 billion

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Definitions:

Discounted Payback Period

A capital budgeting method that calculates the time required to break even on an investment, considering the time value of money.

Payback Period

The length of time required for an investment to recover its initial outlay in terms of profits or savings, used as a measure of the investment's risk.

Required Rate

The minimum return an investor expects to achieve from an investment, taking into account its risk level.

Internal Rate of Return

A financial metric used to estimate the profitability of potential investments, representing the discount rate that makes the net present value of all cash flows equal to zero.