Use the Following to Answer Questions

question 160

Multiple Choice

Use the following to answer questions .
Exhibit: Aggregate Expenditures and Real GDP 1
-(Exhibit: Aggregate Expenditures and Real GDP 1) Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment. Suppose AE = C + I_P, and I_P is autonomous. If potential real GDP is $7,000 billion, what must happen to planned investment for the economy to reach its potential real GDP?

• A) I_P must be decreased by $1,000 billion
• B) I_P must be increased by $1,000 billion
• C) I_P must be decreased by $500 billion
• D) I_P must be increased by $500 billion

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Definitions:

Accrued Expenses

Liabilities (payables) created when expenses are incurred, but cash will be paid in the future; created at end of period during the adjustment process to reflect the amount of expense incurred that the company will pay in the future.

Depreciation Expense

Distributing the expense of a physical asset throughout its lifespan.

Accrue Interest Expense

The recording of interest expense that has been incurred but not yet paid, typically on borrowed funds.

Financial Statements

These are formal records that outline the financial activities and condition of a business, entity, or individual.