Suppose the Population Were Convinced That All Current Adjustments in Income

question 1

Multiple Choice

Suppose the population were convinced that all current adjustments in income were temporary. In the short run then,

• A) the IS curve would be steeper than usual, the government spending multiplier would be larger, and monetary policy would be weaker.
• B) the IS curve would be steeper than usual, the gove rnment spending mu l t i- plier would be smaller, and monetary policy would be less effe c t ive.
• C) the IS curve would be flatter than usual, the government spending multi- plier would be smaller, and monetary policy would be more effective.
• D) the IS curve would be flatter than usual, the government spending multi- plier would be unaffected, but monetary policy would be less effective.
• E) none of the above.

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Definitions:

Income Statement Amounts

The monetary values of revenue, expenses, gains, and losses reported in the income statement.

Common-Size Percentages

Financial analysis tool that converts each line item of financial statements into a percentage of a common base figure to allow for easy comparison.

Balance Sheets

Financial statements that show a company's financial position, detailing assets, liabilities, and equity at a specific point in time.

Inventory Turnover

A ratio indicating how many times a company's inventory is sold and replaced over a period.