Consider the Following News Headline: "Minister of Defence Announces $2

question 7

Multiple Choice

Consider the following news headline: "Minister of Defence announces $2 billion purchase of fighter aircraft." Assuming that aggregate output is demand- determined, and that the aircraft are purchased domestically, what will be the effect of this action, all other things equal, on the AE function and equilibrium national income?

• A)the AE function will rotate downward (become flatter)and national income will fall.
• B)the AE function will shift up parallel to itself and equilibrium national income will rise.
• C)the AE function will shift down parallel to itself and equilibrium national income will fall.
• D)there will be no change in the AE function or in equilibrium national income.
• E)the AE function will rotate upward (become steeper)and equilibrium national income will rise.

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Definitions:

Normal Balance

The side of an account, whether debit or credit, where increases in the account are recorded, determined by the account's classification in the accounting equation.

Capital Account

A national account that shows the net change in asset ownership for a country.

Revenue Account

An account that tracks the income earned from a company's primary operations.

Liability Account

An accounting record that captures the amount a company owes to others, such as loans, accounts payable, or mortgages.