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

question 41

Multiple Choice

In Macroland,the components of planned aggregate expenditure are given by:
C = 100 + 0.9(Y - T) - 500 r
I = 150 - 1,000r
G = 200
NX = 50
If potential output equals 3,800,net taxes equal 100,and the central bank sets the interest rate to equal 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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Definitions:

Efficiency Loss

Reductions in combined consumer and producer surplus caused by an underallocation or overallocation of resources to the production of a good or service. Also called deadweight loss.

Deadweight Loss

A loss of economic efficiency that occurs when the equilibrium for a good or service is not achieved or is not achievable.

Actual Production

The quantity of goods or services produced by a firm, industry, or economy within a specific period, factual and not estimated.

Consumer Surplus

The variance between what consumers are ready and capable of spending on a product or service and the actual sum they end up paying.