A Specific Reduction in Government Spending Will Dampen Demand-Pull Inflation

question 17

Multiple Choice

A specific reduction in government spending will dampen demand-pull inflation by a greater amount, the:

• A)smaller is the economy's MPC.
• B)flatter is the economy's aggregate supply curve.
• C)smaller is the economy's MPS.
• D)less the economy's built-in stability.

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Definitions:

Rational Expectations

The economic theory that individuals make decisions based on their expectations of future economic conditions, which are formed by using all available information.

Velocity of Circulation

The rate at which money changes hands in an economy, illustrating the activity level of economic transactions.

Money Supply

The sum of financial resources present within an economy at any given moment.

Economic Conditions

The state of the economy at a given time, including factors such as GDP, unemployment rates, and inflation.