In order for the expenditure gap to be corrected, Kittyville needs to increase government spending by<u> $20 billion. </u>
As a result of the full employment GDP being less than the current GDP, Kittyville is experiencing a recessionary gap where they are producing below their natural capacity.
To correct it, they can increase government spending to inspire growth. The amount they need to increase government spending by is:
=<em> GDP deficit / Multiplier </em>
GDP deficit:
= Full employment GDP - Current GDP
= 600 - 400
= $200 billion
Multiplier = 1 / ( 1 - MPC)
= 1 / (1 - 0.9)
= 10
Increase in government spending:
= 200 / 10
= $20 billion
In conclusion, Kittyville needs to increase government spending by $20 billion.
<u>First part</u><u> of </u><u>question </u><u>is:</u>
Suppose Kittyville's full-employment GDP = $600 billion, and the current equilibrium GDP = $400 billion. The MPC in this economy = 0.90.
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Answer:
R(pref) = 12.73%
Explanation:
Hi, there is several things here that will only get you confuse, first, there is no use for the market rate of return, we need to find how much issuing this preferred stocks costs to the company.
Second, preferred stocks are not tax deductable therefore there is no point into mentioning the tax-rate of the company.
i think it should be relevant for this type of exercises to mention that a "7% preferred stock outstanding" means that the company is paying 7% of $100 as a fixed payment for every preferred stock.
For all of the above, the answer to this question can be found by using the following formula.
Best of luck.
The answer to this question is <span>establishing trust.
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By establishing trust witht he customers, companies will have an easier time persuading the customers to follow a certain procedures,</span>
Answer: Po = Do(1+g )/ke-g
Po = $1.50(1+0.05)/0.15-0.05
Po = $1.50(1.05)/0.10
Po = $1.575/0.10
Po = $ 15.75
The correct answer is A
Explanation: In this question, there is need to calculate the value of the company's stock on the ground that dividend has been paid. The value of the stock is a function of current divided paid, growth rate and the required rate of return on the stock.
Answer: Limited liability company
Explanation:
In such a structure the owners and the firm are considered separate. The owners in a LLC could not be held personally liable for the debts and liabilities of their company.
The companies have the limited liability feature of the corporations while the profit distribution method depicts partnership structure.
In the given case, Toby and Keith wants to distribute profit among them and also do not want to raise any outside capital. Also they want limited liability in their organisation.
Hence a Limited liability company is an appropriate choice for them.