In the Aggregate Expenditures Model, If Real GDP Equals $700

question 42

Multiple Choice

In the aggregate expenditures model, if real GDP equals $700 billion and aggregate expenditures equal $400 billion,

• A) consumption plus investment equals $300 billion.
• B) planned investment equals $300 billion.
• C) investment plus saving equals $300 billion.
• D) unplanned inventory accumulation equals $300 billion.

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Definitions:

Disposable Income

The liquidity households have for spending and saving, after income taxes have been deducted.

Consumption

The act of using goods and services by households that leads to a decrease in their availability.

APC

In economics, stands for Average Propensity to Consume, which is the ratio of total consumption to total disposable income.

APC

Average Propensity to Consume, which is the fraction of income that households spend on consumption as opposed to saving.