In an Economy Where Planned Aggregate Spending Is Given by PAE

question 54

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 0.06 (6 percent) . If potential output equals 9,500, the central bank must ________ the interest rate to close the ________ gap.

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

---

Definitions:

Fluid Intelligence

The ability to think logically and solve problems in novel situations, independent of acquired knowledge.

Intellectual Attainments

Achievements related to the exercise and application of the intellect, such as academic or creative successes.

Expertise

The skill or knowledge an individual has acquired in a specific field or subject through experience, education, or training.

Intrapersonal Intelligence

The ability of an individual to understand oneself, including one's emotions, motivations, and thoughts, leading to effective self-management and personal development.