Exhibit 16A-3  Macro AD/AS Model

question 127

Multiple Choice

Exhibit 16A-3  Macro AD/AS Model

As shown in Exhibit 16A-3, assume the marginal propensity to consume MPC equals 0.80.  Using discretionary fiscal policy, federal government spending should be _________  in order to restore the economy from E ₁ to full employment.

• A) increased by $2 trillion
• B) decreased by $2 trillion
• C) decreased by $.40 trillion
• D) increased by $.80 trillion

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Definitions:

Maturity Values

The amount payable to the holder of a financial instrument at its maturity date, often the principal plus interest.

Investment

An asset or item acquired with the goal of generating income or appreciation.

Compounded Monthly

Describes the method of computing interest by adding the interest from past periods to the original principal amount and then doing the calculations monthly.

Rate of Return

The earnings or losses accrued from an investment over a predetermined period, measured as a fraction of the investment's buying price.