In a Certain Year the Aggregate Amount Demanded at the Existing

question 210

Multiple Choice

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government
Purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions, the
Government should

• A) encourage personal saving by increasing the interest rate on government bonds.
• B) decrease government expenditures.
• C) reduce tax rates and/or increase government spending.
• D) discourage private investment by increasing corporate income taxes.

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Definitions:

Tax Rate

The tax rate is the percentage at which an individual or corporation is taxed, which can vary depending on income level, type of income, or jurisdiction.

Present Value

The contemporary valuation of a future sum of money or sequence of cash inflows, considering a certain rate of return.

Cost of Capital

The required return necessary to make a capital budgeting project, such as building a new factory, worthwhile.

Net Investment

The total amount spent on purchasing new capital assets minus depreciation on existing assets, indicating the actual increase in a company's capital stock.