Figure 13-5 -Refer to Figure 13-5. Let Y = Real GDP, AE

question 57

Multiple Choice

Figure 13-5
-Refer to Figure 13-5. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, JI_P = Planned Investment. Consider a simple economy where AE = C + I_P, I_P is autonomous
Jand the consumption function is given by C = $1,000 billion + 0.75Y. If potential real GDP is $9,000 billion, by how much must planned investment change to reach potential real GDP?
J

• A) I_P must increase by $250 billion.
• B) I_P must decrease by $250 billion.
• C) I_P must increase by $1,000 billion.
• D) I_P must decrease by $1,000 billion.

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Definitions:

Negatively Correlated

A relationship between two variables in which one variable increases as the other decreases.

Expected Value

A calculation in statistics that quantifies the average outcome of a random event over a large number of occurrences.

Mean

The average value of a set of numbers, calculated by dividing the sum of all values by the number of values.

Risk Aversion

A preference for safer investments, avoiding risk even at the expense of lower potential returns.