Assume That an Inflationary Gap Must Be Closed by Reducing

question 200

Multiple Choice

Assume that an inflationary gap must be closed by reducing aggregate expenditures. If consumers refuse to cut spending on consumption and producers won't cut demand for investment goods, the President:

• A)can do nothing.
• B)must build more roads.
• C)must borrow from Wall Street.
• D)must increase Social Security expenditures.
• E)must cut government spending.

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Definitions:

Hedge Relationship

A connection between a hedging instrument and the risk it is intended to offset, ensuring that changes in the value of one are counterbalanced by changes in the other.

Exchange Gain

A profit resulting from holding or transacting in foreign currencies as exchange rates vary.

Spot Rate

The existing selling or buying price of a certain currency for transactions that are completed right away.

Fair-Value Hedge

A hedge that is used to mitigate the risk of changes in the fair value of an asset, liability, or an unrecognized firm commitment.