In the Aggregate Expenditures Model, If Aggregate Expenditures Are Less

question 177

Multiple Choice

In the aggregate expenditures model, if aggregate expenditures are less than real GDP,

• A) actual real output is less than equilibrium real output.
• B) employment increases.
• C) aggregate output increases.
• D) there will be unplanned increases in inventories.

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Definitions:

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity used to finance its overall operations and growth.

Stock Price

The cost of purchasing a share of a company's stock. The price at which a stock is traded on the market, representing the value investors assign to a company.

MM Model

The Modigliani-Miller theorem, proposing that in a perfect market, the value of a firm is unaffected by how it is financed, whether through debt or equity.

Financial Leverage

The use of borrowed funds with a fixed cost to enhance the potential return on investment.