Scenario 34-2

question 90

Multiple Choice

Scenario 34-2.The following facts apply to a small,imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2.In response to which of the following events could aggregate demand increase by $1,500?

• A)A stock-market boom increases households' wealth by $500,and there is an operative crowding-out effect.
• B)A stock-market boom increases households' wealth by $575,and there is an operative crowding-out effect.
• C)An economic boom overseas increases the demand for U.S.net exports by $600,and there is no crowding-out effect.
• D)Aggregate demand could increase by $1,500 in response to any of these events.

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Definitions:

Treasury Stock

This refers to shares of stock that were issued and later reacquired by the issuing corporation. It is often held to utilize in future acquisitions or to reissue to employees as part of compensation packages.

Par Common Stock

The nominal or face value assigned to a share of common stock by the company's charter.

Prior Period Adjustment

An adjustment made to the financial statements to correct an error found in a period that has already been reported.

Depreciation Expense

Depreciation expense represents the systematic allocation of the cost of a tangible asset over its useful life, reflecting wear and tear, obsolescence, or other reductions in value.