In the Long-Run ISLM Model and with Everything Else Held

question 71

Multiple Choice

In the long-run ISLM model and with everything else held constant,the long-run effect of a cut in government spending is to ________ real output and ________ the interest rate.

• A)increase;increase
• B)increase;not change
• C)not change;increase
• D)not change;decrease

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Definitions:

Present Value Factors

A multiplier used in calculating the present value of a future amount of money or cash flow, based on a specific discount rate over a certain period.

Cash Outlay

The actual amount of cash spent by a business or individual for a specific purpose, including expenses, investments, and acquisitions.

Present Value Index

An investment appraisal tool that compares the present value of net cash inflows generated by a project to the present value of cash outflows, indicating the profitability.

Net Cash Flow

The difference between a company’s cash inflows and outflows in a given period, indicating the company's ability to generate cash.