Figure 16-2 -Assume That a Contractionary Monetary Policy Has Shifted the Aggregate

question 57

Multiple Choice

Figure 16-2
-Assume that a contractionary monetary policy has shifted the aggregate demand curve in Figure 16-2 from D₀D₀ to D₁D₁.Fiscal authorities who wish to restore real GDP to the full-employment level will

• A) run a budget surplus by increasing taxes or cutting government spending.
• B) run a balanced budget to prevent the interest rate from rising and cutting off investment.
• C) run a budget deficit by cutting taxes or increasing government spending.
• D) ignore the change in monetary policy since it has no effect on fiscal policy.

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Definitions:

Positional Power

The authority and influence that comes from the position one holds within an organization's hierarchy.

Coercive Power

A form of power based on the ability to deliver punishments or impose negative consequences to influence behavior.

Reward Power

The capability to offer rewards or positive incentives in order to influence the behavior of others or secure compliance.

Dynamic Process

A process characterized by constant change, activity, or progress, often requiring ongoing adaptation and management.