Assume the Economy Is Operating Above Its Potential Real GDP

question 20

Multiple Choice

Assume the economy is operating above its potential real GDP level, classical economists believe that :

• A) flexible wages will restore full employment.
• B) the federal government should decrease spending to shift the aggregate demand curve leftward.
• C) the Federal Reserve should lower the interest rate.
• D) the federal government should increase spending to shift the aggregate demand curve rightward.

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Definitions:

Barter System

An ancient method of exchange where goods and services are directly traded for other goods and services without using money.

Good

A material item that can be touched, used, or consumed, which is produced to fulfill wants or needs.

Service

A type of economic activity that is intangible, is not stored, and does not result in ownership; services are produced and consumed at the same time.

Exchange

The act of giving one thing and receiving another in return, often referring to the trade of goods, services, or financial instruments.