The Diagram Below Shows Two Budget Deficit Functions for a Hypothetical

question 106

Multiple Choice

The diagram below shows two budget deficit functions for a hypothetical economy.
FIGURE 32- 2
-Refer to Figure 32- 2. Initially, suppose that 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 B?

• A)the implementation of an expansionary fiscal policy
• B)the implementation of an expansionary monetary policy
• C)the implementation of a contractionary monetary policy
• D)the implementation of a contractionary fiscal policy
• E)the economy entering into a boom

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Definitions:

Absolute Advantage

The ability of a country or entity to produce a good or service more efficiently than another country or entity.

Comparative Advantage

The ability of a country, individual, company, or region to produce a good or service at a lower opportunity cost than competitors.

Trade

The process of purchasing, selling, or trading goods and services among individuals, companies, or nations.

Equilibrium Price

The price at which the quantity of a good or service demanded equals the quantity supplied, resulting in market balance without excess supply or demand.