Figure 10.2 -Refer to Figure 10.2..Assume the Economy Is Initially at Equilibrium

question 67

Multiple Choice

Figure 10.2

-Refer to Figure 10.2..Assume the economy is initially at equilibrium at potential GDP of $250 billion.If the MPC = 0.50 and the difference between AE₁ and AE₂ represents a $75 billion decrease in planned investment spending,real GDP at Y₂ will be equal to

• A) $100 billion.
• B) $125 billion.
• C) $175 billion.
• D) $212.5 billion.

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Definitions:

Fiscal Policy

Government policies related to taxes and spending with the goal of influencing the economy's growth, inflation, and employment levels.

Deflation

A decrease in the general price level of goods and services, leading to an increase in the purchasing power of money.

Foreign Investors

Individuals or entities that invest capital in business ventures in a country other than their own, seeking to earn a return on their investment.

Full Employment GDP

The output level (Gross Domestic Product) achieved by an economy when all available resources are employed, but not beyond sustainable capacity.