Let AE = Aggregate Expenditures, C = Consumption, I_P =

question 63

Multiple Choice

Let AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment,
G =Government Purchases. Consider a simple aggregate expenditures model, where
AE = C + I_P + G, and all components of aggregate expenditures except consumption are autonomous. In this model, the multiplier is found using the formula

• A) ∆Y* ÷ initial ∆AE where Y* = equilibrium real GDP by the ∆ = change in, AE = aggregate expenditures.
• B) ∆AE ÷ ∆Y*.
• C) ∆Y* * MPC where MPC = marginal propensity to consume.
• D) 1 ÷ MPC.

---

Definitions:

Optimal Cash Balance

The ideal amount of cash a company should hold to minimize both holding costs and transaction costs.

Float Cost Impact

The effect of delayed checks or securities settlements on the use of funds, which can affect a company's cash flow.

Target Cash Balance

The optimal level of cash a company aims to maintain to manage daily operations and accommodate unexpected expenses or investment opportunities.

Cash Flow Uncertainty

The unpredictability regarding the amounts and timing of cash flows into or out of a business.