Consider a Simple Aggregate Expenditure Model Where All Components of Aggregate

question 18

Multiple Choice

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. The marginal propensity to consume is 0.8. Suppose the equilibrium level of real GDP at the prevailing price is $500 billion below potential real GDP. All else constant, by how much should autonomous aggregate expenditures be increased to reach potential output?

• A) $625 billion
• B) $500 billion
• C) $400 billion
• D) $100 billion

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Definitions:

Mass Production

The large-scale manufacturing of goods using standardized designs and assembly-line techniques to achieve economies of scale.

Lean Production

A systematic method for waste minimization within a manufacturing system without sacrificing productivity.

Continuous Process Improvement

An ongoing effort to improve products, services, or processes by making incremental changes or implementing major overhauls to improve efficiency and quality.

Self-Directed Work Teams

Groups of employees who are given the autonomy to manage themselves and the work they do, often encompassing planning, execution, and monitoring of their tasks.