In the Keynesian-Cross Model, If the MPC Equals 0

question 72

Multiple Choice

In the Keynesian-cross model, if the MPC equals 0.75, then a $1 billion decrease in taxes increases planned expenditures by ______ and increases the equilibrium level of income by ______.

• A) $1 billion; more than $1 billion
• B) $0.75 billion; more than $0.75 billion
• C) $0.75 billion; $0.75 billion
• D) $1 billion; $1 billion

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Definitions:

Coupon Paying Treasuries

U.S. Treasury securities that offer periodic interest payments until maturity, at which point the face value is repaid to the holder.

Principal

The outstanding balance on a loan.

Yield To Maturity

The expected total yield on a bond, assuming it is kept until maturity, encompassing all the interest earnings plus the return of the principal.

Forward Rate

The agreed-upon price for a financial transaction to be executed at a future date, used particularly in currency and interest rate markets.