In a Simple Keynesian Model,a Decrease in Government Spending

question 71

Multiple Choice

In a simple Keynesian model,a decrease in government spending

• A) shifts the C + I + G line upward.
• B) reduces potential GDP below its full-employment level.
• C) causes price levels to rapidly increase.
• D) means the C + I + G line intersects the 45-degree line at a reduced GDP.
• E) affects the composition of GDP but not its value.

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Definitions:

Trust Agreement

A legal document establishing a trust and outlining the rules and guidelines that the trustees must follow in managing the trust assets for the benefit of the beneficiaries.

Present Value

The worth in present terms of a sum of money due in the future or sequences of cash receipts, using a given rate of return for discounting.

Discount Rate

The rate of interest applied to calculate the current value of future cash flows.

Cash Flows

The sum total of cash and assets similar to cash that shift into and out of a commercial establishment.