If the Economy Is at Potential Output and Consumption Spending

question 6

Multiple Choice

If the economy is at potential output and consumption spending suddenly decreases because of a fall in consumer confidence, the appropriate fiscal policy is:

• A) a decrease in government transfers.
• B) an increase in government spending.
• C) a decrease in government spending.
• D) an increase in the money supply to decrease interest rates.

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Definitions:

GAAP

Generally Accepted Accounting Principles, which are a set of rules encompassing the details, complexities, and legalities of business and corporate accounting.

Common Expenses

Expenses that are incurred regularly and are necessary for the maintenance of a business operation.

Dividend Yield

A financial metric indicating the annual dividend payment of a company as a proportion of its share price.