The Figure Shows Planned Aggregate Expenditure and Output for an Economy

question 102

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 increases.
• B) Interest rates increase.
• C) Taxes decrease.
• D) Domestic income decreases.

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Definitions:

Sinking Funds

Reserves of money set aside by a corporation or government to repay a debt or bond issue at or before maturity.

Bondholder

An investor who owns bonds issued by a corporation or government, lending them money in exchange for periodic interest payments and the return of principal at maturity.

Issuer

An entity that issues or proposes to issue any security, or the entity on whose behalf the securities are issued.

Times-Interest-Earned Ratio

A financial ratio that measures a company's ability to meet its interest payments on outstanding debt.