spoos sn (a 14: $4,000 3,000 1,000 800 $500 1.000 1.500 2,000 2.500 3,000 3,500

Question

spoos sn (a 14: $4,000 3,000 1,000 800 $500 1.000 1.500 2,000 2.500 3,000 3,500 4,000 Real GDP (billions of dollars) 0 14. (Figure: Income-Expenditure Equilibrium) According to the figure Income-Expenditure Equilibrium, if planned investment spending increases in this economy, then (other things constant) the: A) Planned (Total) Expenditure (AE) curve will shift up, increasing the income-expenditure equilibrium. Planned (Total) Expenditure (AB) curve will shift down, decreasing the income-expenditure equilibrium government's budget deficit will rise. supply of saving must fall. B) C) D) 15. The medium-of on m A) B) C) D) as the common denominator of prices. as the common denominator of future payments. to pay for goods and services. to accumulate purchasing power.

Explanation / Answer

14.The correct answer is: a)

Reason: we know, total planned expenditure is the sum total of planned consumption, investment and government expenditure. Thus, as planned investment expenditure increases, the total planned aggregate expenditure increases shifting the planned AE curve upwards resulting in an increase in income-expenditure equilibrium.

15.The correct answer is: c)

Reason: As a medium of exchange, money can be used to pay for goods and services.

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