The Long-Run Effect of a Decrease in Government Purchases Can

question 5

Multiple Choice

The long-run effect of a decrease in government purchases can be described as the period of time when

• A)the inflation adjustment line intersects the aggregate demand curve at the level of potential GDP.
• B)firms are adjusting their prices and inflation is increasing to its new level.
• C)real GDP is below potential GDP.
• D)there is no spending balance.
• E)firms are adjusting their prices and inflation is decreasing to its new level.

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