In an Economy in Which Planned Aggregate Expenditure Is Given

question 52

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 0.06 (6%) .If potential output equals 10,000,the central bank must ________ the interest rate to _______ to restore full employment.

• A) lower;3%
• B) lower;4%
• C) lower;5%
• D) raise;7%
• E) raise;8%

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Definitions:

Financial Break-Even

The point at which revenues equal expenses and neither profit nor loss is realized.

Required Rate

Also known as the Required Rate of Return, it is the minimum annual percentage return an investor expects to achieve from an investment.

Discounted Payback

The period of time required to recoup the cost of an investment considering the time value of money through discounted cash flows.

Financial Basis

The underlying value or criteria used for accounting or financial management purposes, often referred to as the method of recognizing revenues and expenses.