Fiscal Policy Is Neutral in the Long Run Even in an Open

question 59

Multiple Choice

Fiscal policy is neutral in the long run even in an open economy in part because

• A) any increase in government spending is negated either by a reduction in net exports or by a reduction in investment.
• B) higher rates of interest and higher price levels reachieve equilibrium at potential GDP with a higher real exchange rate.
• C) any increase in government spending is immediately financed by influxes of foreign investment.
• D) a and b.
• E) all of the above.

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Definitions:

Common Stock

Shares of ownership in a corporation, giving holders voting rights and a claim on profits in the form of dividends.

Treasury Stock

A corporation’s own stock that has been issued and subsequently reacquired from shareholders by the corporation but not retired.

Investing Activity

Transactions involving the purchase or sale of long-term assets and investments, reflected in the cash flow statement of a company.

Operating Activities

Activities that relate to the primary operations of a company, such as selling goods and services, which generate revenue and expenses.