A Country Is Closed

question 14

Multiple Choice

A country is closed.It has no government sector,and its aggregate price levels and interest rates are fixed.Furthermore,the marginal propensity to consume is constant and the country's consumption function is as follows: C = 200 + 0.75YD,where YD is disposable income and C is consumption.Assume that planned investment equals 75.Holding everything else constant,what will happen if aggregate wealth decreases by $100?

• A) The planned aggregate expenditures curve will shift downwards.
• B) The income-expenditure equilibrium real GDP will increase by more than $100.
• C) There will be no multiplier effect on real GDP,since there is a drop in aggregate wealth.
• D) Planned investment will increase.

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Definitions:

Future Cash Flows

The estimated amount of money to be received or paid out over future periods as a result of investments, operations, or financing.

Distributable Cash Flow

A measure of the cash available for distribution to shareholders, often used in assessing the health of a company or a fund.

Operating Capacity

The maximum output a company can produce using its current resources, without compromising quality or efficiency.

Future Cash Flows

These are the estimated amounts of money expected to be received or paid out in the future as a result of current investments, operations, or financial decisions.