In November, 2012, U

question 274

Multiple Choice

In November, 2012, U.S. lawmakers were faced with a "fiscal cliff:" if they did not agree on how to reduce the federal deficit, automatic tax increases and drastic cuts in government spending would take effect. What would happen if the fiscal cliff occurred?

• A) The aggregate demand curve shifts leftward, the price level falls and real GDP decreases.
• B) The aggregate demand curve shifts rightward, the price level rises and real GDP increases.
• C) The short run aggregate supply curve shift leftward, the price level rises and real GDP decreases.
• D) The short run aggregate supply curve shifts rightward, the price level falls and real GDP increases.

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Definitions:

Von Neumann-Morgenstern Utility Function

A mathematical representation of an individual's preference over a set of alternatives, based on the assumption of expected utility maximization.

Risk Lover

A person or entity that prefers to take risks, often in pursuit of higher rewards, rather than avoiding them.

Probability

A measure of the likelihood of a particular event or outcome occurring, expressed as a number between 0 and 1.

Expected Utility Maximizer

An individual who makes choices under uncertainty to maximize their expected level of satisfaction, based on the probabilities of different outcomes.