Consider the Following News Headline: "Minister of Defence Announces $2

question 93

Multiple Choice

Consider the following news headline: "Minister of Defence announces $2 billion purchase of military helicopters." Assuming that aggregate output is demand-determined,and that the helicopters are purchased domestically,what will be the effect of this action,all other things equal,on the AE function and equilibrium national income?

• A)The AE function will shift down parallel to itself,and equilibrium national income will fall.
• B)The AE function will rotate upward (become steeper),and equilibrium national income will rise.
• C)The AE function will rotate downward (become flatter),and national income will fall.
• D)The AE function will shift up parallel to itself,and equilibrium national income will rise.
• E)There will be no change in the AE function or in equilibrium national income.

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Definitions:

Callable Bonds

Bonds that can be redeemed by the issuer before their maturity date at a specified price.

Interest Accrual

The process by which interest is accumulated over time on borrowed funds, to be paid at a later date.

Redemption

The process of paying off or buying back a security, such as a bond, at its face value or at a specified price before maturity.

Effective-Interest Amortization

A method of calculating the amortized cost of a bond or loan based on the periodic interest rate applied to the carrying amount, resulting in an equal interest expense over the period.