Consider a Closed Economy Described by AE (Aggregate Expenditures)= 800

question 90

Multiple Choice

Consider a closed economy described by AE (aggregate expenditures) = 800, 000 + 0.75Y Assume that this economy is initially in equilibrium.But now the government implements a program to improve highways that will cost $1 million.This implies that equilibrium real GDP will:

• A)decrease by $1 million.
• B)decrease by $4 million.
• C)increase by $1 million.
• D)increase by $4 million.
• E)decrease by $800, 000.

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Definitions:

Effective Interest Rate

The actual return on an investment or the real rate of interest calculated annually after considering compounding.

Market Interest Rate

The market interest rate is the prevailing rate at which borrowers are willing to borrow money and lenders are willing to lend in the financial markets.

Contract Rate

The agreed-upon rate for interest or currency exchange in a financial contract between parties.

Market Rate

The prevailing interest rate available in the marketplace for loans or deposits of a specific maturity.