If the Economy Is at Potential Output and Consumption Spending

question 6

Multiple Choice

If the economy is at potential output and consumption spending suddenly decreases because of a fall in consumer confidence, the appropriate fiscal policy is:

• A) a decrease in government transfers.
• B) an increase in government spending.
• C) a decrease in government spending.
• D) an increase in the money supply to decrease interest rates.

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Definitions:

Experimental Method

A research method involving the manipulation of variables to test hypotheses and determine causal relationships in a controlled environment.

Correlational Studies

Non-experimental research methods used to measure and analyze the relationship between two variables without manipulating them.

Causal Relationship

A connection between two events or variables where one directly influences the occurrence of the other.

Longitudinal Designs

Research designs that involve repeated observations of the same subjects over a period of time, often used to study development and change.