In an Economy in Which Planned Aggregate Expenditure Is Given

question 8

Multiple Choice

In an economy in which planned aggregate expenditure is given by PAE = 3,000 + 0.75Y - 10,000r,the central bank is currently setting the interest rate at 0.05 (5%) .If potential output equals 10,800,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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