In a Certain Economy,the Components of Planned Aggregate Expenditure Are

question 76

Multiple Choice

In a certain economy,the components of planned aggregate expenditure are given by:
C = 60 + 0.6(Y - T) - 1,000r
I = 200 - 1,000r
G = 200
NX = 50
If potential output equals 825,net taxes equal 100 and the central bank sets the interest rate equal to 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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