Suppose That the Government Deficit Increases,but the Interest Rate Remains

question 158

Multiple Choice

Suppose that the government deficit increases,but the interest rate remains the same.Which of the following things might have happened simultaneously to keep interest rates the same?

• A)the government reduces the amount that people may put into savings accounts on which the interest is tax exempt.
• B)because they are optimistic about the future of the economy, firms desire to borrow more to purchase physical capital.
• C)consumers decide to decrease consumption and work more.
• D)All of the above could explain why the interest rate would be unchanged.

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Definitions:

Profit Maximization

Achieving the highest possible profit through the management of production, pricing, and sales strategies.

Competitive Market

A market structure characterized by a large number of buyers and sellers, where no single participant can significantly influence the price or terms of products.

Production Costs

The total expenses involved in manufacturing a product, including raw materials, labor, and overhead.

Average Variable Cost

The per-unit variable cost of production, calculated by dividing total variable costs by the quantity of output produced.