When Government Purchases Decrease, the Short-Run Effect Can Be Described

question 66

Multiple Choice

When government purchases decrease, the short-run effect can be described as the period of time when

• A)there is no spending balance.
• B)inflation is constant.
• C)real GDP and inflation are adjusting to their new long-run levels.
• D)real GDP is below potential GDP.
• E)the inflation adjustment line has not reached the new intersection of aggregate demand at the level of potential GDP.

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Definitions:

Interest Rate

The cost of borrowing money, expressed as a percentage of the amount borrowed.

Present Value

The current financial valuation of a sum of money due in the future or stream of income, based on a specific interest rate.

Future Value

The worth of an investment or cash flow at a specified future date, based on an assumed rate of growth over time.

Opportunity Cost

Opportunity cost refers to the potential benefits an individual, investor, or business misses out on when choosing one alternative over another.