In an Economy Where Aggregate Spending Is Given by Y

question 24

Multiple Choice

In an economy where aggregate spending is given by Y = 3,000 + .75Y - 10,000 r, 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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Definitions:

Ethnic Group

A community or population made up of people who share a common cultural background, heritage, language, or race.

Traditional Beliefs

Customs, narratives, and values inherited from one's culture or society that have been passed down over generations.

Pluralistic Societies

Societies characterized by the coexistence of several distinct cultural or ethnic groups within a given territory.