Question

For each one dollar increase in real gdp, aggregate planned expenditure:____.

a. increases by one dollar.
b. increases only if autonomous expenditure increases.
c. increases by less than a dollar.
d. is unaffected.
e. increases by more than a dollar.

Answer 1

The correct answer is c. increases by less than a dollar. When there is an increase in real GDP, aggregate planned expenditure does not increase by the same dollar amount. Instead, it increases by a smaller proportion.

Step-by-step explanation:

The correct answer is c. increases by less than a dollar.

The concept being discussed here is the multiplier effect. When there is an increase in real GDP, aggregate planned expenditure does not increase by the same dollar amount. Instead, it increases by a smaller proportion. This is because some portion of the increased GDP is saved rather than spent, resulting in a smaller increase in aggregate planned expenditure.

In the given information, it is mentioned that an increase in government spending of $100 eventually produces an increase of $213 in aggregate expenditure and real GDP. This implies that the multiplier is $213/$100 = 2.13, which is greater than 1 but less than 2. Therefore, the correct answer is that aggregate planned expenditure increases by less than a dollar.