Refer to Figure 11

question 90

Multiple Choice

Refer to Figure 11.1.Assume aggregate demand is initially represented by AD₁ and full-employment output is $6.0 trillion.If aggregate demand increases by the amount of the GDP gap,equilibrium will occur at

• A)Point a.
• B)Point b.
• C)Point c.
• D)Point D.If aggregate demand increased by the amount of the recessionary GDP gap,we would get a shift from AD₁ to AD_2. The new equilibrium would occur at point c,leaving the economy short of full employment (Q_F).Some of the increased demand pushes up prices instead of output.

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Definitions:

Effective Rate

The actual interest rate that a borrower pays on a loan or receives on an investment, taking into account the compounding of interest.

Interest

Interest is the cost of using someone else's money or the return on invested capital, typically expressed as an annual percentage rate.

Lenders

Individuals or institutions that provide funds to borrowers under the condition of receiving back the principal amount plus interest.

Income Shares

A method often used in family law to determine the amount of child support payments based on the proportional income of each parent.