-The Above Figure Plots Income and Consumption in a Nation

question 309

Multiple Choice

-The above figure plots income and consumption in a nation. In 2007

• A) consumption was equal to $25,000 and income was equal to $28,000.
• B) consumption was equal to $28,000 and income was equal to $25,000.
• C) consumption was equal to $25,000 and income was equal to $25,000.
• D) consumption was equal to $27,000 and income was equal to $31,000.

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Definitions:

Potential GDP

The highest level of Gross Domestic Product (GDP) an economy can sustain over a long period without increasing inflation, reflecting its full employment output.

Inflation

A widespread rise in prices and a decrease in the value of money.

Spending Multiplier

A concept in Keynesian economics that quantifies the effect of an increase in autonomous spending on the total economic output.

Potential Output

The highest level of economic output that can be sustained over the long term without increasing inflation.