An Economy's Potential Output Is Equal to $22 Billion,and Its

question 19

Multiple Choice

An economy's potential output is equal to $22 billion,and its current output is equal to $20 billion.If the marginal propensity to consume has a value of 0.9,then the government should increase spending by ________ billion to return the economy to the long-run equilibrium.

• A) $0.2
• B) $1.8
• C) $2
• D) $10
• E) $1

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Definitions:

Nominal Interest Rate

The stated interest rate on a loan or investment, not accounting for compounding or inflation effects.

Compounded Monthly

A method of calculating interest where the accumulated interest is added to the principal sum each month, leading to an increase in the amount of subsequent interest accrued.

Financing

The process of providing funds for business activities, making purchases, or investing.

Nominal Rate

The stated or named interest rate on a loan or investment, not accounting for compounding or inflation.