Contractionary Fiscal Policy to Prevent Real GDP from Rising Above

question 64

Multiple Choice

Contractionary fiscal policy to prevent real GDP from rising above potential GDP would cause the inflation rate to be ________ and real GDP to be ________.

• A) higher; higher
• B) higher; lower
• C) lower; higher
• D) lower; lower

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Definitions:

Substitute Resource

A resource that can be used in place of another in production processes, often influencing supply and price levels.

Marginal Revenue Product

The additional revenue generated from employing one more unit of a resource, such as labor or capital.

Law of Diminishing Returns

An economic principle stating that as one input in the production process is incrementally increased, holding all other inputs constant, there will be a point at which the added output from each additional unit of input will start to decrease.

Dollars Per Unit

A unit cost measure representing the price or cost of a single item or measure of goods or services.