Suppose the economy is initially operating at full employment. A reduction in the size of the budget deficit will cause which of the following in the short run?
A. an increase in the price level with no change in real GDP.
B. an increase in real GDP and an increase in the price level.
C. an increase the price level and a reduction in real GDP.
D. a recessionary gap.
Answer: D
You might also like to view...
With respect to CO2 emissions, low-income countries
a. do not contribute to the problem b. can expect to have "dirtier" industries as they develop c. contribute more per dollar of output than high-income countries d. will have to sacrifice output in order to reduce emissions e. none of the above
In the classical model, when an open economy has balanced trade, Say's law does not hold
a. True b. False
Because increases in inflation reduce planned spending and short-run equilibrium output:
A. the short-run aggregate supply line is downward sloping. B. the aggregate demand curve is horizontal. C. the aggregate demand curve is upward sloping. D. the aggregate demand curve is downward sloping.
A(n) ________ in the liquidity of corporate bonds will ________ the price of corporate bonds and ________ the yield on corporate bonds, all else equal
A) increase; increase; decrease B) increase; decrease; decrease C) decrease; increase; increase D) decrease; decrease; decrease