In the Short Run, a Fiscal Contraction That Causes a Decrease

question 28

Multiple Choice

In the short run, a fiscal contraction that causes a decrease in the budget deficit:

• A) affects the level of output but not its composition.
• B) affects both the level and composition of output.
• C) affects only the price level.
• D) is neutral.
• E) affects only the composition of output.

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Definitions:

Seller

An individual, company, or entity that offers products or services for sale to consumers or other businesses.

Monopolistically Competitive Industry

An industry characterized by many firms producing slightly differentiated products, leading to competitive market conditions but with each firm maintaining some market power.

Differentiated Product

A product that is distinguished from similar products offered by competitors through variations in design, functionality, or quality, making it more appealing to a specific segment of consumers.

Monopolistically Competitive Firm

A company that operates in a market structure characterized by many firms selling products that are similar but not identical, allowing for some degree of market power and product differentiation.