Apart from C, the information given in other options is wrong.

Interest rate is the cost of borrowing funds.

There are different factors that influence the consumption decisions of households. The main factor that determines consumption expenditures is income level and there is a positive relationship between consumption and income as indicated by the consumption function. In principle, the income of households is measured by current disposable income. Secondly, wealth is the value of all assets that households have. Another important factor for determining consumption is the expectations about future income, prices and wealth. When the other factors effecting consumption are assumed to be constant, an increase in population will increase consumption expenditures.

Economists started to discuss the topics about macroeconomics as a result of economic events during Great Depression in 1930s. It is possible to say that there were no big problems in world economy until 1920s.

Cyclical, seasonal, structural and frictional unemployment are types of unemployment.

Fiscal policy is a branch of general economy policy. A successful fiscal policy requires adjustments of public expenditures and revenues according to macroeconomic objectives considering their effects on economic variables. Fiscal policy is a discipline that has gained importance and grown fast since 1930s. In fact, the discussions stemming from 1929 Great Depression are deemed as the origin of modern fiscal policy. In 1950s and 1960s, fiscal policy found an opportunity to spread widely and to develop more.

Since shaded area lies above the 45° line, it means income is greater than the consumption expenditures.

When public expenditure increase is financed totally via taxes, the level of income increases is equal to expenditure increase. In case of changes in public expenditures and taxes are the same, the numerical value of net multiplier being equal to 1 is called as balanced budget multiplier.

While GDP is calculated in terms of expenditures; gross investments are taken into account rather than net investments.

Average propensity to save is the ratio of savings to income.

The marginal propensity to consume is a concept of how much consumption will change when income changes. Similarly, marginal propensity to save (MPS) reveals the relationship between the income change and the saving change and is calculated as the ratio of the saving change to the income change.

Capacity Utilization, interest rate cost of capital goods and expected profit are the factors that affect planned investments.

Saving Paradox is the reduction in the consumption expenditures and, therefore, income because of rising savings.

If public expenditures are higher than public revenues, the emerged budget deficit can only be met by government’s borrowing.

According to Classical economists, interest rate is the key variable to provide this equality. This interest rate, which is determined on the loanable funds market, will change so as to ensure that the funds provided as a result of savings are equal to the funds requested for investments.

Aggregate expenditures are lower than the GDP in income levels when the AE function is below the 45° line. In this case, GDP will begin to decline and this decline will continue until the equilibrium level is reached.

Within this context, the state’s use of public expenditures and taxes in order to affect the macroeconomic variables such as employment, income and prices is called as fiscal policy.

If an economy suffers from a high rate of unemployment, the government, directly or indirectly, should encourage increase in private and/or public sector spending, i.e., it should follow an expansionary fiscal policy. This kind of fiscal policy is resulted in increasing production and creating new job opportunities. On the other hand, if an economy suffers from a high rate of inflation, the government, directly or indirectly, should encourage decrease in private and/ or public sector spending, i.e., it should follow a contractionary fiscal policy. This kind of fiscal policy will diminish the increasing pressure on prices.

Import is the amount of goods and services purchased from other countries.

Average propensity to consume is the ratio of consumption expenditures to income.