Assume That the MPC Is 0

question 115

Multiple Choice

Assume that the MPC is 0.9. If government purchases increase by $100, equilibrium output ________; and if taxes increase by $100, equilibrium output ________.

• A) increases by $1,000; decreases by $1,000
• B) increases by $900; decreases by $1,000
• C) increases by $1,000; decreases by $900
• D) increases by $400; decreases by $400

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Definitions:

Cash Cycle

The cash cycle, also known as the cash conversion cycle, measures the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales.

Operating Cycle

The period it takes for a business to acquire resources, produce inventory, sell it in the market, and eventually collect cash from the sale.

Accounts Payable Period

The average amount of time it takes for a business to pay off its suppliers and creditors for purchases made on credit.

Cash Cycle

The time period between the outlay of cash for the production process and the collection of cash from customers.