If MPC = 0

question 6

Multiple Choice

If MPC = 0.75, a $40 billion decrease in government purchases would have what size effect on the "first round" of induced added consumption?

• A)It would increase first round consumption by $30 billion.
• B)It would increase first round consumption by $40 billion.
• C)It would increase first round consumption by $120 billion.
• D)It would increase first round consumption by $160 billion.
• E)None of the above; the first round effect would be a decrease in consumption.

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Definitions:

NPV

An abbreviation for Net Present Value, it assesses the worth of future cash flows in today's dollars, subtracting the initial investment.

PI

A mathematical constant representing the ratio of a circle's circumference to its diameter, approximately 3.14159.

Payback Method

A capital budgeting technique that calculates the time required to recoup the cost of an investment.