Based on the figure below. Starting from long-run equilibrium at point C, a decrease in government spending that decreases aggregate demand from AD1 to AD will lead to a short-run equilibrium at__ creating _____gap.
A. B; no output
B. D; an expansionary
C. B; recessionary
D. D; a recessionary
Answer: D
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In the new Keynesian model, the ultimate effect on inflation of an anticipated aggregate demand shock is ________
A) less than if that event was unanticipated B) greater than if that event was unanticipated C) the same as would develop if that event had never occurred D) independent of whether or not that event is anticipated or unanticipated
A major difference between the Federal Reserve System and foreign central banks is that the
a. Fed is considered part of our government while central banks in other countries are not part of the government b. Fed is completely independent of government influence while central banks in other countries are under government influence c. Fed deals with less money than its foreign counterparts d. U.S. does not have a single central bank like its foreign counterparts e. purpose of the Fed is to make a profit while other countries' central banks exist to serve the public
Discretionary fiscal policy occurs when: a. the government passes a new law that changes tax or spending levels. b. the government borrows funds from the public
c. the Federal Reserve issues new currency notes. d. the Federal Reserve increases the market interest rate.
When the price of a good is high, selling the good is profitable, and so the quantity supplied is large
a. True b. False Indicate whether the statement is true or false