In Econland,the Components of Planned Aggregate Expenditure Are Given By

question 35

Multiple Choice

In Econland,the components of planned aggregate expenditure are given by:
C = 500 + 0.75(Y - T) - 500r
I = 300 - 500r
G = 400
NX = 30
If potential output equals 4,520,net taxes equal 40 and the central bank sets the interest rate at 0.05 (5%) ,then the bank must ________ the interest rate to ________ to restore full employment.

• A) raise;6%
• B) raise;7%
• C) lower;4%
• D) lower;3%
• E) lower;2%

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