A Temporary Decrease in Government Purchases Would Cause

question 25

Multiple Choice

A temporary decrease in government purchases would cause

• A)an increase in the real interest rate and a decrease in desired investment.
• B)a decrease in the real interest rate and an increase in desired investment.
• C)a decrease in the real interest rate and an uncertain effect on desired investment.
• D)an uncertain effect on the real interest rate and an increase in the level of desired investment.

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Definitions:

Equilibrium Quantity

The quantity of goods or services that is supplied and demanded at the equilibrium price, where supply equals demand.

Elastic Demand

A situation in which the demand for a good or service significantly changes in response to a change in price.

Inelastic Demand

A situation where the demand for a product does not change significantly in response to price changes.

Midpoint Method

A technique used in economics for calculating the percentage change between two numbers, considering the average of the two numbers as the base.