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

question 95

Multiple Choice

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

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

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Definitions:

Basis Points

One basis point is equal to 1/100th of 1%, used primarily to denote the change in interest rates, equity indexes, and the yield of fixed-income securities.

Price Decline

A decrease in the market price of an asset or security.

Duration

A measure of the sensitivity of the price of a bond or other fixed-income investment to a change in interest rates, often expressed in years.

Price Volatility

The rate at which the price of an asset increases or decreases for a given set of returns, indicative of the risk or stability.