Assuming an Upward-Sloping Short-Run Aggregate Supply Curve, a Decrease in Government

question 12

Multiple Choice

Assuming an upward-sloping short-run aggregate supply curve, a decrease in government spending results in ________ in output and ________ in prices in the short run.

• A) a decrease; a slight decrease
• B) an increase; no change
• C) an increase; a slight increase
• D) no change; a decrease

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Definitions:

Discount Rate

The rate of interest that central banks impose on the credits they extend to commercial banks or financial entities.

Planned Investment

The amount of spending by businesses on capital goods, such as new equipment and buildings, that is intended for future use and production.

Monetary Policy

The process by which the monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure stability and economic growth.

Interest Rates

Interest rates are the cost of borrowing money or the reward for saving, determined by the supply and demand for credit, inflation, and central bank policies. This rate impacts consumer spending, investment, and economic growth.