Scenario 21-2

question 184

Multiple Choice

Scenario 21-2. The following facts apply to a small, imaginary economy.• Consumption spending is $5,200 when income is $8,000.• Consumption spending is $5,536 when income is $8,400.
-Refer to Scenario 21-2. In response to which of the following events could aggregate demand increase by $1,500?

• A)A stock-market boom increases households' wealth by $300, and there is an operative crowding-out effect.
• B)A stock-market boom increases households' wealth by $275, and there is an operative crowding-out effect.
• C)An economic boom overseas increases the demand for U.S. net exports by $240, and there is no crowding-out effect.
• D)Aggregate demand could increase by $1,500 in response to any of these events.

Understand the impact of internationalization on macroeconomic policy.

Comprehend conventional monetary and fiscal policies to combat inflation and recession.

Identify the challenges posed by inflationary recessions and strategies to combat them.

Interpret the implications of rational expectations theory for monetary and fiscal policy efficacy.

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Definitions:

Optic Disc

The region in the eye where the optic nerve connects to the retina; also known as the blind spot.

Retina

The light-sensitive layer of tissue at the back of the eye, responsible for converting light into neural signals for vision.

Blind Spot

The point in the visual field that corresponds to the lack of light-detecting photoreceptor cells on the optic disc of the retina.

Rods

Photoreceptor cells in the retina of the eye that are sensitive to low light levels and are primarily responsible for night vision and peripheral vision.