Use the Aggregate Expenditures Model and Assume an Economy Is

question 112

Multiple Choice

Use the aggregate expenditures model and assume an economy is in equilibrium at $6 trillion which is $500 billion below full-employment GDP. If the marginal propensity to consume (MPC) is 0.75, full-employment GDP can be reached if government spending:

• A)increases by $75 billion.
• B)increases by $125 billion.
• C)increases by $500 billion.
• D)is held constant.

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Definitions:

Initial Investment

The initial amount of money invested in a project or business venture.

CCA Rate

Refers to Capital Cost Allowance rate, which is the rate at which a business can claim tax depreciation on certain properties or equipment in Canada.

CCA Class

Canadian Capital Cost Allowance Class; a categorization in Canadian tax law that determines the depreciation rate for tax purposes on different types of assets.

Required Rate

The lowest expected gain an investor aims to receive from an investment in a specific asset, taking into account the associated risk.