"The Only Thing That Results from Expansionary Demand-Side Fiscal Policy

question 100

Multiple Choice

"The only thing that results from expansionary demand-side fiscal policy is that the price level will rise." The economist who said this most likely believes that

• A) there is likely to be a lot of crowding out if government spending rises.
• B) the AS curve is vertical.
• C) there is unlikely to be much crowding out if government spending rises.
• D) investment is interest inelastic.
• E) b and c

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Definitions:

Behavioral Economists

Scholars who study the effects of psychological, cognitive, emotional, cultural, and social factors on economic decisions of individuals and institutions.

Marginal Disutility

The additional dissatisfaction or negative utility gained by consuming or producing one additional unit of a good or service.

Status Quo

The existing state of affairs; in prospect theory, the current situation from which gains and losses are calculated.

Prospect Theory

A behavioral economic theory that describes how people choose between probabilistic alternatives that involve risk, where the probabilities of outcomes are uncertain.