In a Certain Economy, the Components of Planned Spending Are

question 153

Multiple Choice

In a certain economy, the components of planned spending are given by:  
C = 500 + 0.8 (Y - T) - 300r
I ᴾ = 200 - 400r
G = 200
NX = 10
T = 150
 
Given the information about the economy above, what would be the impact on short-run equilibrium output of a one-percentage-point increase in the real interest rate, assuming the income-expenditure multiplier equals 5?

• A)Short-run equilibrium output would increase by 35 units.
• B)Short-run equilibrium output would decrease by 700 units.
• C)Short-run equilibrium output would decrease by 35 units.
• D)Short-run equilibrium output would decrease by 7 units.

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Definitions:

Underlying Asset

The financial asset upon which a derivative instrument, such as an option or a futures contract, is based.

Floating-Rate Debt

Floating-rate debt is a type of loan or security that has a variable interest rate, which adjusts periodically based on a benchmark or index rate.

Market Value

The current price at which an asset or service can be bought or sold in a public market.

Historical Cost

The original financial value of an asset or investment at the time of its acquisition.