If the MPC Were to Increase from 0

question 12

Multiple Choice

If the MPC were to increase from 0.75 to 0.8, then the spending multiplier would:

• A) increase from 4 to 5.
• B) decrease from 5 to 4.
• C) increase from 0.2 to 0.25.
• D) decrease from 1.25 to 1.2.

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Definitions:

Corporate Bond

A type of debt security issued by corporations to raise capital, with the promise to repay the principal along with interest on specified dates.

Tax-Exempt

Financial earnings that are not subject to taxation by the government, often applied to certain bonds and municipal securities.

Preferred Stock

Nonvoting shares in a corporation, paying a fixed or variable stream of dividends.

Cumulative Dividends

Dividends that are owed to preferred shareholders of a company and must be paid out before dividends can be distributed to common shareholders.