Suppose There Is an Increase in Government Spending

question 9

Multiple Choice

Suppose there is an increase in government spending. Such a fiscal policy action will cause:

• A) the natural level of output to rise.
• B) the natural level of output to fall.
• C) ambiguous effects on the natural level of output.
• D) no effect on the natural level of output.
• E) the natural level of output rises when the natural real interest rate falls.

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Definitions:

Cash Payments

Transactions that involve the transfer of cash from one entity to another.

Inventory Increase

An rise in the quantity or value of goods held by a company for the purpose of sale in the normal course of business.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including the cost of the materials and labor directly involved in creating the good.

Accounts Payable Decrease

A reduction in the amount a company owes to its suppliers or vendors, indicating payments have been made.