The Figure Shows Planned Aggregate Expenditure and Output for an Economy

question 25

Multiple Choice

The figure shows planned aggregate expenditure and output for an economy. Suppose that the economy starts at PAE₂. Which change would cause a move from PAE₂ to PAE₁?

• A) The wealth level decreases.
• B) Interest rates decrease.
• C) The expected profitability of investments increase.
• D) Domestic income decreases.

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Definitions:

Dividend Yield

The annual dividend payment expressed as a percent of the stock price.

Index Model

A financial model that relates a stock's returns to the returns of a broader market index, used to estimate the stock's beta and expected returns.

Standard Deviation

A measure of the dispersion or variability of a set of values, widely used in finance to assess the risk associated with a particular investment.

Index Model

A statistical model used to predict stock prices by relating the returns of each stock to the returns of an overall market index.