If Planned Aggregate Expenditure (PAE)in an Economy Equals 1,000

question 39

Multiple Choice

If planned aggregate expenditure (PAE) in an economy equals 1,000 + 0.6Y and potential output (Y*) equals 3,000,then this economy has

• A) an expansionary gap.
• B) a recessionary gap.
• C) no output gap.
• D) an income-expenditure multiplier equal to 5.
• E) an income-expenditure multiplier equal to 9.

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Definitions:

Product Cost

The total expenditure incurred to produce a product, including direct materials, direct labor, and overhead.

Manufacturing Plant

A facility used for the production of goods, equipped with machinery and labor force necessary for the manufacturing process.

Ending Finished Goods Inventory

Ending finished goods inventory is the value of all completed products that have not been sold by the end of an accounting period, ready for delivery to customers.

Raw Materials Used

The total cost of materials directly consumed in the production process during a specific period.