Suppose the Government Reduces Its Budget Deficit at the Same

question 38

Multiple Choice

Suppose the government reduces its budget deficit at the same time that energy prices rise sharply.Which of the following will happen?  

• A) The price level will rise, because higher prices increase the cost of production. 
• B) Real GDP will fall, because both events tend to cause an economic contraction. 
• C) The price level will fall, because the aggregate demand curve has shifted leftward. 
• D) Real GDP will rise; so with less government spending, there will be more opportunities for the private sector.

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Definitions:

Central Route

A path of persuasion that involves careful and thoughtful consideration of the arguments presented.

Peripheral Route

A method of persuasion that relies on superficial cues rather than the substantive quality of the argument.

Cognitive Dissonance

The mental discomfort experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time.

Political Campaign

An organized effort which seeks to influence the decision-making process within a specific group, typically in the context of elections for political offices.