To Understand How a Change in Government Purchases Affects Real

question 164

Multiple Choice

To understand how a change in government purchases affects real GDP in the short run, we need to focus on

• A)the identity between real GDP and income and the identity between real GDP and potential GDP.
• B)the consumption function and the identity between real GDP and income.
• C)the identity between real GDP and income and the identity between disposable income and real GDP.
• D)the consumption function and the identity between real GDP and disposable income.
• E)the consumption function and the identity between real GDP and potential GDP.

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Definitions:

Strip Bond

A debt security that has had its principal and coupon payments detached and sold separately as zero-coupon bonds.

Compounded Semi-Annually

Interest that is computed and added to the original amount every six months, resulting in compound interest.

Compounded Annually

A method where interest is added to the principal balance once a year, affecting the total interest earned or paid.

Compounded Monthly

A method of calculating interest where interest earned is added to the principal monthly, so each subsequent interest calculation is on an increased amount.