Assume an Economy Is in Equilibrium at an Output Level

question 254

Multiple Choice

Assume an economy is in equilibrium at an output level of $600 billion. If government purchases decrease by $75 billion, then at the output level of $600 billion, there is

• A) an unplanned increase in inventories.
• B) an unplanned inventory change of zero.
• C) either an unplanned increase or decrease in inventories depending on the value of the MPC.
• D) an unplanned decrease in inventories.

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Definitions:

Interest Rates

The percentage charged on a loan or paid on deposited funds.

Foreign Trade Deficit

A situation where a country's imports of goods and services exceed its exports, resulting in a net outflow of domestic currency to foreign markets.

National Debt

The total amount of money that a country's government has borrowed by various means, including foreign governments, private investors, and international financial institutions.

Stock Variable

A measure of a quantity at a particular point in time, such as wealth or capital.