Suppose the Government Increases Its Expenditures by $100 Million and Finances

question 122

Multiple Choice

Suppose the government increases its expenditures by $100 million and finances the resulting deficit by selling bonds.Then the LM curve will

• A)shift rightward.
• B)shift leftward.
• C)become steeper.
• D)None of these.

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Definitions:

Systematic Risk

The danger that affects the whole market or a part of the market, which cannot be reduced by diversifying investments.

Unique Risk

A risk that affects a very small number of assets, also known as unsystematic risk, specific risk, or idiosyncratic risk, and can be largely eliminated by diversification.

Market Risk

The risk of losses in investments due to factors that affect the overall performance of the financial markets, including economic, political, and geopolitical events.

Diversifiable Risk

The component of an investment's risk that can be reduced or eliminated through diversification, which involves spreading investments across various assets to reduce exposure to any single risk.