The Diagram Below Shows Two Budget Deficit Functions for a Hypothetical

question 47

Multiple Choice

The diagram below shows two budget deficit functions for a hypothetical economy. FIGURE 31-2
-Refer to Figure 31-2.Initially,suppose real GDP is $100 million and the budget deficit is $14 million,as shown by point A.Which of the following events could result in a move from point A to point C?

• A)a fiscal expansion and an increase in GDP
• B)a fiscal contraction and an increase in GDP
• C)a fiscal expansion and a decrease in GDP
• D)a fiscal contraction and a decrease in GDP
• E)an increase in GDP with no change in fiscal policy

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Definitions:

Price Fall

A reduction in the market price of a good or service, which can influence consumer behavior and economic conditions.

Demand Function

A mathematical expression that shows the relationship between the quantity demanded of a good and its price, holding other factors constant.

Elasticity

A measure of how much the quantity demanded or supplied of a good responds to a change in price or other economic variables.

Elasticity of Demand

Quantifies the change in demand for a commodity in response to its price movements.