Use the Following to Answer Questions

question 109

Multiple Choice

Use the following to answer questions:
-(Figure: Fiscal Policy Options) Refer to Figure: Fiscal Policy Options. If the aggregate demand curve is AD'':

• A) the economy is in long-run equilibrium.
• B) an expansionary fiscal policy may be warranted.
• C) a contractionary fiscal policy may be warranted.
• D) the economy is in a recessionary gap.

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Definitions:

Erosion

In finance, it refers to the gradual decline of an asset's value, or the negative impact one investment can have on the value of an existing investment.

Incremental Cash Flows

The additional cash flow a company generates from undertaking a new project, considering only the revenues and costs directly caused by the project.

Incremental Cash Flows

The additional cash flow a business receives from undertaking a new project.

Sunk Costs

Outlays already made that cannot be refunded or retrieved.