Assume That Full-Employment Real GDP Is Y = $1,200 Billion

question 165

Multiple Choice

Assume that full-employment real GDP is Y = $1,200 billion, the current equilibrium real GDP is Y = $1,600 billion, and the MPC = 0.8. In order to bring the economy to a full-employment real GDP,

• A)a recessionary gap must be bridged by increasing aggregate expenditures by $80 billion.
• B)an inflationary gap must be bridged by cutting aggregate expenditures by $80 billion.
• C)nothing is needed to bring the economy into full employment equilibrium.
• D)a recessionary gap must be bridged by increasing aggregate expenditures by $400 billion.
• E)an inflationary gap must be bridged by cutting aggregate expenditures by $400 billion.

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Definitions:

PE Ratio

A valuation metric for stocks, calculated by dividing the current market price of a stock by its earnings per share.

Earnings Per Share

A financial metric that divides a company's profit by the outstanding shares of its common stock.

Convertible Preferred Stock

Equity securities that offer the owner the right to convert into a specified number of the company's common stock, often at a pre-determined time.

Common Stock

A type of equity security that represents ownership in a corporation, with rights to vote on corporate matters and receive dividends.