Suppose the Government Permanently Reduces Spending in an Effort to Reduce

question 21

Multiple Choice

Suppose the government permanently reduces spending in an effort to reduce the budget deficit. In the new long-run equilibrium, output will ________ and the price level will ________.

• A) decrease; decrease
• B) remain unchanged; decrease
• C) remain unchanged; increase
• D) decrease; remain unchanged
• E) increase; decrease

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Definitions:

Advertising Budget

The amount of money allocated for promoting products or services through various media channels.

Net Income

The total earnings of a company after all expenses and taxes have been deducted from revenue.

Sales Units

The number of individual items or units a business sells within a specific period.

Variable Expenses

Expenses that change in proportion to the activity of a business such as production volume or sales.