-Refer to the Above Figure

question 41

Multiple Choice

-Refer to the above figure. Suppose the economy is at E and the government uses an expansionary fiscal policy to move the aggregate demand curve to . In the end, the aggregate demand curve is still . A possible reason for this is that

• A) the economy is already at full employment.
• B) the increased borrowing causes higher interest rates, which encourage people to save more and increase investment spending due to the extra saving.
• C) people increase saving because they anticipate higher future taxes, resulting in a reduction in current consumption spending that offsets the increased government spending.
• D) some of the increased government spending is not counted in GDP.

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Definitions:

Autonomic Arousal

The activation of the autonomic nervous system, governing involuntary physiological responses to stimuli.

Fear

A primal emotion triggered by the perception of danger, real or imagined, leading to fight-or-flight responses.

James-Lange Theory

A theory of emotion suggesting that physiological arousal precedes and causes the emotional experience, contrary to the common-sense view.

Autonomic Arousal

The activation of the autonomic nervous system, which controls involuntary body functions and can be triggered by stress or emotions.