In an Economy Where Planned Aggregate Spending Is Given by PAE

question 59

Multiple Choice

In an economy where planned aggregate spending is given by PAE = 3,000 + .75Y − 10,000r, the central bank is currently setting the interest rate at 0.05 (5 percent) . If potential output equals 10,800, the central bank must ________ the interest rate to close the ________ gap.

• A)lower; recessionary
• B)raise; recessionary
• C)lower; expansionary
• D)raise; expansionary

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