Consider the Simplest Macro Model with Demand-Determined Output,where AE =

question 133

Multiple Choice

Consider the simplest macro model with demand-determined output,where AE = C + I.Suppose that actual national income is $900 billion and desired consumption plus desired investment is $920 billion.We can expect that

• A)firms will see an increase in inventories,and they will respond by decreasing output,thereby decreasing actual national income.
• B)firms will decrease autonomous investment by $20 billion until equilibrium national income is reached at $900 billion.
• C)firms will increase autonomous investment by $20 billion until equilibrium national income is reached at $920 billion.
• D)firms will see a decrease in inventories,and they will respond by increasing output,thereby increasing actual national income.
• E)actual national income will decrease until equilibrium national income is reached at $900 billion.

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Definitions:

Compounded Annually

Interest that is calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan, done once a year.

Compounded Monthly

This refers to the calculation of interest on the initial principal and the accumulated interest over previous periods on a monthly basis.

Investor

An entity or individual who commits funds hoping to achieve monetary rewards.

Compounded Semi-Annually

Describes the method of determining interest by applying it to both the original amount of money invested or loaned and any interest that has already been added to that amount, occurring two times annually.