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:

Significance Level

The threshold below which a p-value is considered statistically significant, typically set at 0.05 or 5%.

Population Means

The average value of a particular characteristic for all the individuals within a population.

Pooled Variance

A method used to estimate the variance of two or more different samples that assume the underlying population variances are equal.

Sample Variances

A measure of variance calculated from a sample of a population, used to estimate the variance of the entire population.