Exhibit 15-6 Aggregate Demand and Supply Model

question 95

Multiple Choice

Exhibit 15-6 Aggregate demand and supply model

In Exhibit 15-6, if the aggregate demand curve is at AD₂, the government should:

• A) raise taxes to move to AD₁.
• B) not change its policy.
• C) cut taxes to move to AD₃.
• D) cut spending to move to AD₃.

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Definitions:

Discount Rate

The interest rate used to discount future cash flows to their present value, essential in the valuation of investments and projects.

Prepaid

Expenses paid in advance for goods or services to be received in the future.

Monthly Basis

Refers to something that occurs, is measured, or is evaluated once every month.

Compounded Monthly

This refers to the method by which interest earnings are calculated on a monthly basis, with each month's interest being added to the principal for the calculation of the next month's interest.