The Diagram Below Shows Desired Aggregate Expenditure for a Hypothetical

question 85

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) = 0.80
· net tax rate t) = 0.15
· no foreign trade
· fixed price level
· all expenditure and income figures are in billions of dollars.
FIGURE 22-3
-Refer to Figure 22-3. Which of the following equations describes the aggregate expenditure function for this economy?

• A) AE = 1000 + 0.68)Y
• B) AE = 1000 + 0.80)YD
• C) AE = 1000 +0.80)Y + 0.15 YD
• D) AE = 1975 + 0.68)Y
• E) AE = 1975 +0.65)Y

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Definitions:

Replacement Cost

Cost to replace a firm’s assets. Also called reproduction cost.

Economic Income

The sum of a company's net cash flow and the change in present value of a company's cash flows in a given period.

ROA

Return on Assets, a financial ratio indicating the profitability of a company relative to its total assets.

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity, which is used to finance its overall operations and growth.