If There Is a Sudden Increase in Government Spending,which of the Following

question 113

Multiple Choice

If there is a sudden increase in government spending,which of the following should the Fed do if it wants to keep the price level steady?

• A) Do nothing,since the self-correcting mechanism will adjust the economy
• B) Sell bonds in the open market
• C) Wait,since the price level usually does not change when government spending increases
• D) Decrease the required reserve ratio
• E) Buy bonds in the open market.

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Definitions:

Supply Shifted

A change in the quantity of a good or service that suppliers are willing and able to sell at all possible prices, typically due to factors like changes in technology or costs.

Inverse Demand Curve

A graph that shows the relationship between the price of a good and the quantity demanded, plotted with price on the vertical axis and quantity on the horizontal axis.

Equilibrium Price

The rate at which the amount of a good or service sought by consumers is equal to the amount available, achieving a state of market equilibrium.

Substitutes

Products or services that can replace or act as alternatives to another, affecting consumer choices and market dynamics.