Suppose, for a Certain Economy, Real and Potential GDP Are

question 94

Multiple Choice

Suppose, for a certain economy, real and potential GDP are initially equal. Then government purchases permanently increase. Compared to the baseline, we would expect to see, in the medium run,

• A)a decrease in consumption and an increase in both net exports and investment.
• B)a decrease in consumption, investment, and net exports.
• C)an increase in consumption, a decrease in net exports, and no change in investment.
• D)an increase in consumption and net exports and a decrease in investment.
• E)an increase in consumption and a decrease in both net exports and investment.

---

Definitions:

Interest Rate

The percentage of a sum of money charged for its use, often expressed as an annual percentage.

Future Value

The estimated value of an investment or a financial asset at a specific future date, considering factors like interest rates or returns over time.

Interest Factor

A multiplier used to calculate the amount of interest accrued over a certain period of time.