Assume That the Economy Is in Equilibrium at an Interest

question 32

Multiple Choice

Assume that the economy is in equilibrium at an interest rate and level of national income where the IS curve cuts the LM curve. A large cut in government spending would be expected to:

• A) increase interest rates and the level of national income.
• B) reduce interest rates but increase the level of national income.
• C) reduce interest rates and the level of national income.
• D) shift the IS curve to the right.
• E) leave the economy in an unchanged position because the marginal propensity to consume is constant.

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Definitions:

Liver

A vital organ that performs essential functions such as detoxification, protein synthesis, and the production of biochemicals necessary for digestion.

Skeletal Muscle

A type of striated muscle tissue, which is under the voluntary control of the somatic nervous system and is responsible for body movements.

Brain

The central organ of the nervous system, located in the skull, responsible for processing sensory information and controlling bodily functions and behavior.

Hypothalamohypophysial Portal System

A blood vessel system that directly connects the hypothalamus with the anterior pituitary gland, allowing hormone transport.