Question

Aggregate expenditure equals:

A) Consumption + Investment + Government purchases + Transfers

B) Consumption + Investment + Government purchases + Net exports

C) Consumption + Investment + Federal government purchases + Exports

D) Consumption + Government purchases – Net exports

As the real interest rate rises:

I. consumption rises.

II. net exports fall.

III. investment rises.

A) II only

B) I only

C) I and III

D) III only

When the real interest rate rises in the United States, there is a(n) ________, which

causes the dollar to ________ and aggregate expenditure ________.

A) increase in net capital outflows; appreciate; to fall

B) decline in net capital outflows; depreciate; to rise

C) decline in net capital outflows; appreciate; to fall

D) decline in new capital investments; depreciate; to fall

The aggregate expenditure curve is the ________ relationship between ________ and

________.

A) positive; inflation; the output gap

B) negative; the real interest rate; output

C) negative; the unemployment rate; inflation

D) negative; the unemployment rate; the output gap

Answer 1

Answer- B) Consumption + Investment + Government purchases + Net exports

In economics aspects, aggregate expenditure is the present value of all the completed goods and services in the economy. It is the entirety of the considerable number of expenditures attempted in the economy by the elements during a particular timeframe. The equation for aggregate expenditure is: AE = C + I + G + NX.
Where- C is consumption, I is investment, G is Government spendings or purchases and NX is net exports.

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Answer-B, only II

Builds the expense of purchasing. With higher interest rates, interest installments on credit cards and loans are progressively costly. Thusly this debilitates individuals from purchasing and spending. Individuals who as of now have loans will have less disposable income since they spend more on interest installments. Consequently different regions of consumption will fall.

Expanded motivation to save as opposed to spend. Higher interest rates make it progressively alluring to save in a deposit account due to the interest picked up. It prompts decline in investment.

Higher interest rates increment the estimation of a currency (for example Because of hot money streams, investors are bound to save in US banks in the event that US rates are higher than different nations) A more grounded Dollar makes US exports less competitive – diminishing exports and expanding imports. This has the impact of decreasing aggregate demand in the economy.

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Answer-C, decline in net capital outflows; appreciate; to fall

If interest rates rise in the US, its net capital outflow will decrease. Because there will be higher interest rates here than in other countries. Americans and other foreigners will deposit in US banks and invest in US assets, so that they can get maximum benefits. This type of interest rates and net capital outflow have a negative relationship. Capital outflows increase when the interest rate decreases, capital outflows decrease when interest rates are higher.

Changes in the real interest rate can affect the U.S. dollar. For the most part, higher interest rates increment the value of currency. The higher interest rates that can be earned will in general pull in foreign investment, expanding the demand for and value of the nation of origin's currency. So it will value the dollar.

Higher real interest rates decreases aggregate consumption by expanding the expense of loans while expanding the profit from investment funds. The two variables diminish expenditure by lessening consumption and investments, and along these lines, aggregate expenditure.

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Answer-C, negative; the unemployment rate; inflation

When aggregate expenditure increases, it leads to increase in real output. Increase in output leads to increase in employment or decrease in unemployment. So there's is negative relationship between aggregate expenditure and unemployment.

Higher inflation will in the end cause aggregate expenditures to diminish, on the grounds that more significant expenses decreases the abundance of consumers, subsequently prompting lower spending. This is especially valid for less fortunate consumers, since they will in general go through all the money that they have, to pay for fundamentals.
So there's a negative relationship between inflation and aggregate expenditure.