Question 4(1 point)

Which of the following statements is true?

a

Expectationsof future higher incomes or asset prices will increase current spending and AD; and expectations of lower incomes or prices will decrease spending and AD.

b

An increase in personal incometaxesincreases disposable income and then consumption, increasing AD; and a decrease in income taxes decreases disposable income and then consumption, decreasing AD.

c

Investmentis spending on capital goods such as plant, machinery and equipment.

d

All of the above.

e

Only a) and c)

Question 5(1 point)

Which of the following statements is true?

a

Increases in investment increase AD; and decreases in investment reduce AD.

b

As thereal interest rateincreases, the cost of borrowing increases and thus less funds will be borrowed; this reduces investment and then AD. On the other hand, a decrease in the real interest rate increases borrowing; this increases investment and then AD.

c

If firms are optimistic about futureexpected

returns, they will invest more now, which increases AD. On the other hand, if firms are pessimistic about future expected returns, they will invest less now, which reduces AD.

d

All of the above.

e

Only a) and b)