Which of the Following Economic Variables Is Affected When the Government

question 18

Multiple Choice

Which of the following economic variables is affected when the government adopts a countercyclical fiscal policy?

• A) Expenditure on the maintenance of highways
• B) Interest rates
• C) Bank reserves
• D) M2 measure of money supply

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Definitions:

Price Mechanism

is the process by which the forces of supply and demand determine the price of goods and services in a market economy.

Circular Flow Model

An economic model illustrating the movement of goods, services, and money between households and businesses in an economy.

Demand

The desire and ability of consumers to purchase goods or services at given prices, playing a critical role in determining market prices and quantities.

Supply

The aggregate availability of a product or service for acquisition at a designated price.