In an Economy in Which Planned Aggregate Expenditure Is Given

question 87

Multiple Choice

In an economy in which planned aggregate expenditure is given by PAE = 5,500 + 0.6Y - 20,000r,the central bank is currently setting the interest rate at 0.05 (5%) .If potential output equals 11,750,the central bank must ________ the interest rate to ________ to restore full employment.

• A) lower;3%
• B) lower;4%
• C) raise;6%
• D) raise;7%
• E) raise;8%

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Definitions:

Quantity Supplied

The level of a good or service that sellers are eager and able to provide for purchase at a set price over a given period.

Perfectly Price Inelastic

A market situation where the quantity demanded of a good does not change in response to changes in its price.

Total Income

The sum of all earnings obtained from work, investments, and other sources before any taxes or deductions.

Perfectly Price Elastic

Describes a situation where the quantity demanded or supplied changes infinitely in response to any change in price.