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

question 89

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 slope of the AE curve is the

• A) MPC and the multiplier is 1 ÷ (1 - MPC).
• B) MPC and the multiplier is 1 ÷ MPC.
• C) multiplier and the multiplier is 1 ÷ MPS.
• D) MPC and the multiplier is ∆AE ÷ ∆Y where Y = real GDP.

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Definitions:

Market Value

The estimated amount for which an asset or company could be sold on the open market.

Optimal Distribution Policy

The distribution policy that maximizes the value of the firm by choosing the optimal level and form of distributions (dividends and stock repurchases).

Capital Gains

Capital gains are the profits realized from the sale of assets such as stocks, bonds, or real estate, which exceed the purchase price of these assets.

Stock Dividends

The payment of additional shares of a company to its existing shareholders instead of cash.