The Diagram Below Shows Desired Aggregate Expenditure for a Hypothetical

question 47

Multiple Choice

The diagram below shows desired aggregate expenditure for a hypothetical economy. Assume the following features of this economy:
· marginal propensity to consume mpc) = 0.75
· net tax rate t) = 0.20
· no foreign trade
· fixed price level
· all expenditure and income figures are in billions of dollars.
FIGURE 22-2
-Refer to Figure 22-2. Which of the following equations describes the aggregate expenditure function for this economy?

• A) AE = 250 + 0.6)Y
• B) AE = 225 + 0.75)Y
• C) AE = 250 +0.15)Y
• D) AE = 75 + 0.75)Y + 0.2)YD
• E) AE = 250 +0.75)Y + 0.2)YD

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Definitions:

Transfer Payments

Payments made by the government to individuals, without the government receiving any goods or services in return.

Nondiscretionary Fiscal Policy

involves government policies, like taxation and certain types of government spending, that are not easily altered and automatically adjust to economic conditions.

Aggregate Demand

The whole of economic demand for goods and services at a given price level, within a certain time range.

Federal Budget

A government's plan for revenue and spending over a specific period.