(Figure: Aggregate Demand and Supply) the Above Graph Depicts an Economy

question 165

Multiple Choice

(Figure: Aggregate Demand and Supply) The above graph depicts an economy originally in equilibrium at point e. Assume that the government uses expansionary fiscal policy. Which of the following statements is true?

• A) The movement from point a to point b is due to increased consumer spending brought about by increased government spending and/or lower taxes.
• B) The movement from point e to point a is due to workers and suppliers adjusting their expectations to lower price levels.
• C) The movement from point a to point b is due to workers and suppliers adjusting their expectations to higher price levels.
• D) The movement from point e to point a is due to decreased consumer spending brought about by increased government spending and/or lower taxes.

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Definitions:

Speculative Motive

The intention to hold cash or other assets in anticipation of future market fluctuations to gain financial advantages.

Collection Float

The time period between when a check is deposited and when the funds become available in the recipient's account, affecting the cash flow and liquidity.

Float Management

The practice of managing the time between when a check is deposited and when it clears, to optimize the use of funds.

Target Cash Balance

The optimal amount of cash a company seeks to maintain to handle operational and transactional needs efficiently.