Suppose the Government Reduces Its Budget Deficit at the Same

question 128

Multiple Choice

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

• A)The price level will rise,since higher energy prices increase the cost of production.
• B)Real GDP will fall since both events will 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 as less government spending leads to more opportunities for the private sector.
• E)Both the price level and real GDP will fall.

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Definitions:

Temper Tantrum

A Temper Tantrum is an emotional outburst, usually seen in young children, that can include crying, screaming, and aggressive behavior as a response to frustration or unmet needs.

Superego

A component of Sigmund Freud's personality theory that represents the ethical component, providing moral standards by which the ego operates.

Id

A component of the personality in Freud's psychoanalytic theory that is responsible for the instinctual and primitive behaviors.

Ego

In psychology, a part of the mind that mediates between conscious and unconscious thoughts, often tied to one's sense of self-esteem and identity.