An Increase in Investment Spending Because Companies Become More Optimistic

question 68

Multiple Choice

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

• A) rise; left
• B) rise; right
• C) fall; left
• D) fall; right

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Definitions:

Functional Finance

Functional finance is a theoretical approach to fiscal policy which holds that government budgets should be primarily evaluated on their effects on the economy rather than on principles of borrowing and debt.

Federal Budget

The annual financial statement presenting the government's proposed revenues and spending for a financial year.

Crowding In

An economic situation where increased government spending leads to an increase in private sector investment.

Crowding Out

A phenomenon where increased government spending leads to a reduction in private sector investment due to higher interest rates.