The Equilibrium Aggregate Expenditure Model

question 11

Multiple Choice

The equilibrium aggregate expenditure model:

• A) can explain why an economy should always be at the natural rate of GDP.
• B) illustrates how government always moves an economy towards equilibrium GDP.
• C) illustrates how an economy can achieve equilibrium below the natural rate of GDP.
• D) proves that an economy will always tend towards the natural rate of GDP.

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Definitions:

Resource Demand

The demand for inputs necessary for the production of goods and services.

MRP

MRP, or Marginal Revenue Product, quantifies the added value generated by employing an additional unit of input in the production process.

Haircut

A reduction applied to the value of an asset for purposes of calculating capital requirements, margining, or risk assessment.

Marginal Revenue Product

The extra income produced by employing an additional unit of a production resource.