Which of the Following Would Be the Theoretical Outcome of Contractionary

question 135

Multiple Choice

Which of the following would be the theoretical outcome of contractionary fiscal policy in the following aggregate demand-aggregate supply model,where LRAS is long-run aggregate supply and SRAS is short-run aggregate supply?

• A) The aggregate demand (A
• D) curve would shift from AD₁ to AD₂.
• B) The short-run aggregate supply (SRA
• S) curve would shift from SRAS₂ to SRAS₁.
• C) The SRAS curve would shift from SRAS₁ to SRAS₂.
• D) The AD curve would shift from AD₁ to AD₂ at the same time that the SRAS curve would shift from SRAS₁ to SRAS₂.
• E) The AD curve would shift from AD₂ to AD₁.

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Definitions:

EBIT

Earnings Before Interest and Taxes represents a metric for gauging a firm's profit, specifically excluding expenses related to interest and taxes.

Sales Revenue

The total amount of money generated from the sale of goods or services before any expenses are subtracted.

Financial Leverage

The use of borrowed funds to increase the potential return of an investment, amplifying both gains and losses.

Earnings Per Share (EPS)

A financial ratio that measures the portion of a company's profit allocated to each outstanding share of common stock.