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.

---

Definitions:

Operating Expenses

The costs associated with running a business’s core activities on a day-to-day basis, including selling, administrative, and other expenses.

Cash Collections

The process or amount of collecting received payments from customers, typically for goods sold or services rendered.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, reflecting the asset's consumption or wear and tear.

Cash Budget

A detailed plan showing how cash resources will be acquired and used over a specific time period.