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%

---

Definitions:

Profitability

A measure of the efficiency of a company or investment in generating profit or return compared to its revenue or investment size.

Capital Budgeting Process

The procedure companies use to evaluate and select long-term investments that are aligned with their goal of shareholder wealth maximization.

Incremental Cash Flows

The additional cash flow a business receives from taking on a new project, used to analyze the profitability of that project.

Investment Requirement

The total capital and resources needed for a project, investment, or venture to proceed.