If the Fed Responds to an Increase in Government Spending

question 56

Multiple Choice

If the Fed responds to an increase in government spending with the goal of stable prices and output,which of the following would be the result?

• A) A larger multiplier effect than normal
• B) Partial crowding out
• C) An increase in consumption and investment spending
• D) No crowding out
• E) Complete crowding out.

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Definitions:

Production Possibility Frontiers

A curve depicting all maximum output possibilities for two or more goods given a set of inputs, demonstrating the trade-offs between choices of production.

Maximum Efficiency

The optimal use of resources to achieve the best possible output or outcome without wasting any resources.

Full Employment

A situation in an economy where all available labor resources are being used in the most efficient way possible, typically characterized by the absence of cyclical or involuntary unemployment.

Decreasing Opportunity Costs

A situation in which the opportunity costs of resources decrease as the production of one good increases, often due to factors like improved technology or specialization.