If an Economy's MPC Is 0

question 300

Multiple Choice

If an economy's MPC is 0.95 and the MPM is 0.15, then an increase in government spending of $1,000 will increase income by

• A) $1,000.
• B) $4,500.
• C) $5,000.
• D) $8,000.

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Definitions:

Direct Materials

Raw materials that are directly used in the manufacturing of a product and are easily traceable to it.

Variable Manufacturing Overhead

Overhead costs that fluctuate with changes in production volume, such as utility expenses and machine maintenance.

Variable Overhead

Indirect production costs that change in relation to the level of production activity, such as utilities for a manufacturing facility.

Rate Variance

The difference between the actual rate and a predetermined or standard rate.