Let AE = Aggregate Expenditures, C = Consumption, I_P =

question 63

Multiple Choice

Let AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment,
G =Government Purchases. Consider a simple aggregate expenditures model, where
AE = C + I_P + G, and all components of aggregate expenditures except consumption are autonomous. In this model, the multiplier is found using the formula

• A) ∆Y* ÷ initial ∆AE where Y* = equilibrium real GDP by the ∆ = change in, AE = aggregate expenditures.
• B) ∆AE ÷ ∆Y*.
• C) ∆Y* * MPC where MPC = marginal propensity to consume.
• D) 1 ÷ MPC.

---

Definitions:

Exchange Rate

The value of one currency for the purpose of conversion to another, determining how much one currency is worth in terms of another.

Foreign Exchange Market

A global marketplace for trading national currencies against one another.

Economic Growth

Refers to the increase in the production of economic goods and services, compared from one period of time to another.

Trade Deficit

A situation where a country's imports of goods and services exceed its exports, leading to more money leaving the country than coming in.