Consider a Simple Aggregate Expenditure Model Where All Components of Aggregate

question 107

Multiple Choice

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. The marginal propensity to consume is 0.75. Suppose the equilibrium level of real GDP at the prevailing price is $600 billion below potential real GDP. All else constant, by how much should autonomous aggregate expenditures be increased to reach potential output?

• A) $150 billion
• B) $450 billion
• C) $600 billion
• D) $800 billion

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Definitions:

Neoliberalism

Neoliberalism is an economic and political ideology that emphasizes free-market capitalism, deregulation, and reduction in government spending.

Ethical System

A structured set of moral principles that guide individuals or groups in making decisions about right and wrong.

Redesign

The process of designing something again or differently, often to improve its functionality or aesthetics.

Recall

The action of officially ordering the return of a product due to the discovery of safety issues or product defects.