Suppose Government Purchases Have Increased and the Economy Has Reached

question 76

Multiple Choice

Suppose government purchases have increased and the economy has reached a new long-run equilibrium. Which of the following best describes the new equilibrium?

• A)Consumers are worse off because taxes are higher.
• B)Nothing has changed because real GDP is again equal to potential GDP.
• C)The economy is growing more slowly because consumption is higher.
• D)The economy is better off because consumption is higher.
• E)The economy is growing more slowly because investment is lower.

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Definitions:

Direct Foreign Investment

An investment from a company or individual in one country into the business landscape of another country, through starting new business operations or buying existing business assets.

U.S. Trade Deficits

The situation where the total value of goods and services imported by the United States exceeds the total value of goods and services it exports.

Recession

A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

International Asset Transactions

The sale, trade, or transfer of ownership rights to either real or financial assets, including currency, across international borders.