Consider a Simple Economy That Is Made Up of Three

question 8

Multiple Choice

Consider a simple economy that is made up of three sectors: households, firms, and government. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,
I_P = Planned Investment, G = Government Purchases. Further, I_P and G are autonomous.
In this case, the slope of the aggregate expenditures curve is

• A) 1.
• B) infinity (since the AE curve is horizontal).
• C) equal to the marginal propensity to consume.
• D) the value of the multiplier.

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Definitions:

Dissonance Theory

A psychological model proposing that inconsistency among beliefs, attitudes, or behaviors creates discomfort leading to an alteration in one of them to reduce the dissonance.

Allness

A communicative error assuming one knows all there is to know about a particular subject, therefore oversimplifying complex entities or experiences.

Words Are Arbitrary

The concept that the meanings attached to words are not inherently linked to their phonetic expressions but are agreed upon by users of the language.

Static Evaluation

Viewing people or situations as unchanging, and failing to recognize that change occurs over time.