If Fiscal Policy Makers Increase Aggregate Demand in an Attempt

question 9

Multiple Choice

If fiscal policy makers increase aggregate demand in an attempt to decrease the unemployment rate below the natural rate of unemployment,then:

• A)the potential GDP will decrease.
• B)the potential GDP will increase.
• C)the only lasting impact of the policy is a higher price level.
• D)the only lasting impact of the policy is higher real GDP.
• E)the only lasting impact of the policy is lower real GDP.

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Definitions:

Opportunity Cost

The cost of the next best alternative foregone as the result of making a decision.

Depreciation

The reduction in the value of an asset over time, often due to wear and tear or obsolescence.

Implicit Cost

The opportunity cost equal to what a firm must give up or forgo in order to use resources in its own operations, not directly paid in money.

Part-Time Employees

Part-time employees are workers who are employed for fewer hours than the standard full-time work schedule, often without the same benefits as full-time employees.