Suppose the Economy Is in Long-Run Equilibrium

question 107

Multiple Choice

Suppose the economy is in long-run equilibrium. If the federal government cuts government
Spending, which of the following is likely to result?

• A) an increase in real GDP and an increase in the price level
• B) an increase in unemployment and an increase in the price level
• C) a decrease in unemployment and a decrease in the price level
• D) a decrease in the price level and an increase in unemployment

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Definitions:

Study of Finance

The discipline that concerns the management, creation, and study of money, banking, credit, investments, assets, and liabilities.

Real Assets

Physical or tangible assets that have intrinsic value, such as real estate, commodities, and natural resources.

Financial Assets

Assets that derive value from a contractual claim, such as bank deposits, bonds, and stocks.

Goods and Services

refers to the output of an economy that can be physically consumed (goods) or experienced (services), and form the basis for economic transactions.