Suppose the Economy Is in Macroeconomic Equilibrium with Real GDP

question 110

Multiple Choice

Suppose the economy is in macroeconomic equilibrium with real GDP equal to Y*.If the government then implements an expansionary fiscal policy by increasing government purchases,what are the long-run effects on potential output?

• A)The growth rate of potential output may be reduced due to the crowding out of private investment.
• B)Potential output will adjust to the new higher level achieved with the expansionary fiscal policy.
• C)Potential output will drop below its starting point because of the crowding out of investment.
• D)The growth rate of potential output will rise due to the higher level of aggregate demand.
• E)The level of potential output is fixed and will not be affected by fiscal policy.

---

Definitions:

Sleep

A naturally recurring state of mind and body characterized by altered consciousness, relatively inhibited sensory activity, reduced muscle activity, and inhibition of nearly all voluntary muscles during rapid eye movement (REM) stages.

Motor Cortex

The region of the cerebral cortex involved in the planning, control, and execution of voluntary movements.

Somatosensory Cortex

A region of the cerebral cortex that processes sensory information from the body, such as touch, temperature, and pain.

Lobes

Divisions of the brain defined by natural separation lines, each associated with different functions such as vision, hearing, and thought processing.