In the Keynesian-Cross Model, a Decrease in the Interest Rate

question 83

Multiple Choice

In the Keynesian-cross model, a decrease in the interest rate ______ planned investment spending and ______ the equilibrium level of income.

• A) increases; increases
• B) increases; decreases
• C) decreases; decreases
• D) decreases; increases

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Definitions:

Sunk Costs

Expenses that have already been incurred and cannot be recovered or refunded.

Fixed Costs

Expenses that do not change in proportion to the activity of a business, such as rent, salaries, and insurance.

Explicit Costs

Input costs that require an outlay of money by the firm

Long-Run Equilibrium

A state where all factors of production and costs are variable, allowing firms to make adjustments leading to the ideal output level.