Suppose You Read in the Paper That Government Purchases Will

question 47

Essay

Suppose you read in the paper that government purchases will decrease by $50 billion. Next to the article are three forecasting companies' predictions of the effect the reduction in government purchases will have on real GDP. The predictions are:
Firm A: There will be no other changes in spending, and real GDP will fall by $50 billion.
Firm B: There will be no other changes in spending, and real GDP will fall by $75 billion.
Firm C: Investment will increase by $50 billion, and real GDP will remain the same.
Which forecast do you believe?

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Definitions:

Antidrug Policy

Strategies and laws implemented by governmental entities to combat the production, distribution, and consumption of illegal drugs.

Supply of Heroin

The total quantity of heroin that producers are willing and able to sell at a given price level, influenced by factors such as legality, enforcement, and production costs.

Street Crime

Refers to crime committed in public places and is often associated with violence, theft, and vandalism.

Demand

The quantity of a particular good or service that consumers are willing and able to purchase at various prices, assuming all other factors remain constant.