Under Which Circumstance Does a Change in Government Spending Have

question 47

Multiple Choice

Under which circumstance does a change in government spending have the largest effect on the real interest rate?

• A) A monetary policy targeted at a constant monetary base with checking accounts paying no interest
• B) A monetary policy targeted at a constant interest rate with checking accounts paying no interest
• C) A monetary policy targeted at a constant money supply with checking accounts paying competitive interest rates
• D) A monetary policy targeted at a constant monetary base with checking accounts paying competitive interest rates
• E) Either a or d depending on macroeconomic conditions

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Definitions:

Circular-Flow Diagram

A Circular-Flow Diagram is a visual model of the economy that shows how dollars flow through markets among households and firms.

Revenue

The total amount of income generated by the sale of goods or services related to a company's primary operations.

Factors of Production

The factors of production include land, labor, capital, and entrepreneurship, which are the resources used in the process of producing goods and services.

Real GDP

An evaluation of the economic output's value, after accounting for changes in prices because of inflation or deflation, demonstrating the genuine amount of goods and services produced.