Figure 16-2 -Assume That a Contractionary Monetary Policy Has Shifted the Aggregate

question 63

Multiple Choice

Figure 16-2

-Assume that a contractionary monetary policy has shifted the aggregate demand curve in Figure 16-2 from D₀D₀ to D₁D₁.Fiscal authorities who wish to restore real GDP to the full-employment level will

• A)run a budget surplus by increasing taxes or cutting government spending.
• B)run a balanced budget to prevent the interest rate from rising and cutting off investment.
• C)run a budget deficit by cutting taxes or increasing government spending.
• D)ignore the change in monetary policy since it has no effect on fiscal policy.

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