Figure 16-2 -Suppose That Figure 16-2 Shows the Effects of Reducing the Effects

question 74

Multiple Choice

Figure 16-2

-Suppose that Figure 16-2 shows the effects of reducing the budget deficit by raising taxes.If authorities do not want real GDP to fall, monetary policy must

• A) become sufficiently more expansionary to restore the aggregate demand curve to D0D0.
• B) contract aggregate demand to be consistent with deficit-reducing fiscal policy.
• C) not lower interest rates and thwart the goal of a balanced budget.
• D) become more contractionary to lower the interest rate and spur investment.

---

Definitions:

Expected Earnings

The anticipated profit or income generated by an investment or a business activity in a future period.

Disadvantages

The drawbacks or unfavorable aspects associated with a particular decision, action, or strategy.

P/E Ratios

Price-to-Earnings Ratio, a valuation measure comparing the current share price of a company to its per-share earnings, indicating the dollar amount an investor can expect to invest to receive one dollar of the company's earnings.

Valuation

The process of determining the present value of an asset or a company.