Which of the Following Policies Would Keep an Economy Operating

question 37

Multiple Choice

Which of the following policies would keep an economy operating at full potential while combating an excessive trade deficit and an overvalued domestic currency?

• A) Reducing government spending and increasing the domestic money supply so that the interest rate falls at potential GDP
• B) Increasing both government spending and the domestic money supply so that the interest rate increases at potential GDP
• C) Reducing both government spending and taxes so that the interest rate falls and GDP climbs above potential
• D) Increasing both government spending and taxes so that the interest rate increases even as GDP climbs above potential
• E) Placing import restrictions on the country's largest imports

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Definitions:

Removal

The process of moving or eliminating something from a certain place or context.

User Cost

The cost of using a good or service, considering both the expense of use and the opportunity cost of not using an alternative.

Extraction Cost

The expenses associated with removing natural resources from the earth, such as mining, drilling, or harvesting.

Gold Bars

Solid bars of gold, typically standardized in weight, that are bought, sold, and stored as investment and reserve assets.