When Drawn Against the Real Interest Rate, the Output Supply

question 4

Multiple Choice

When drawn against the real interest rate, the output supply curve unambiguously shifts to the right if either or both of the following occur.

• A) an increase in current government spending and an increase in future government spending
• B) an increase in current government spending and a decrease in future government spending
• C) a decrease in current government spending and an increase in future government spending
• D) a decrease in current government spending and a decrease in future government spending
• E) a decrease in current government spending and an increase in the real interest rate

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Definitions:

Demand-Pull Inflation

A sustained rise in the price level caused by a rightward shift of the aggregate demand curve.

Inflation Rate

The percentage rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Standard of Living

A level of wealth, comfort, material goods, and necessities available to a certain socioeconomic class or a geographic area.

Real Prices

Prices that have been adjusted for inflation or deflation, reflecting the purchasing power of money in different time periods.