If You Were Told the MPC Was = 0

question 14

Multiple Choice

If you were told the MPC was = 0.75 and the government engaged in a tax decrease of $400B, then the initial change in GDP would be:

• A) $400B.
• B) $1600B.
• C) $300B.
• D) $1200B

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Definitions:

Common Stockholders

Owners of common shares in a corporation, having voting rights and potentially receiving dividends.

Cumulative Preferred

Refers to preferred stock where dividends that were not paid in the past must be paid out to preferred shareholders before dividends can be distributed to common shareholders.

Proposed Acquisition

A potential financial transaction where one company offers to purchase or merge with another entity.

Dividend Growth Model

A method for valuing a stock by assuming dividends grow at a constant rate indefinitely and calculating the present value of the forecasted dividends.