If the Economy Is in Equilibrium at $400 Billion of GDP

question 22

Multiple Choice

If the economy is in equilibrium at $400 billion of GDP and the full-employment GDP is $500 billion,

• A)real and nominal GDP will both increase.
• B)GDP will remain at $400 billion unless aggregate expenditures change.
• C)real GDP will increase, but nominal GDP will decrease.
• D)the price level will increase.

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Definitions:

Zero-Coupon Bond

A bond that is sold at a discount to its face value and pays no interest before maturing, at which point its face value is repaid to the holder.

Discount Rate

The interest rate used to calculate the present value of future cash flows, representing the opportunity cost of capital.

Higher-Yield Bonds

Bonds that offer higher interest rates because they have lower credit ratings, indicating higher risk of default compared to more secure bonds.

Longer Maturities

Refers to bonds or other fixed-income securities that have a longer time until the final repayment date.