Use the Following to Answer Questions

question 114

Multiple Choice

Use the following to answer questions :
Figure: Fiscal Policy with a Fixed Money Supply
-(Figure: Fiscal Policy with a Fixed Money Supply) Look at the figure Fiscal Policy with a Fixed Money Supply. Assume that this economy is at E₁. Now government deficit spending is increased, but the Federal Reserve does NOT expand the money supply. According to this model:

• A)real GDP will expand just as much as if the Federal Reserve had expanded the money supply.
• B)real GDP will decrease because the Federal Reserve did not expand the money supply.
• C)real GDP will expand, but not as much as if the Federal Reserve had expanded the money supply.
• D)interest rates will decrease.

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Definitions:

Sawmill

A facility where logs are cut into lumber by machine, converting raw timber into boards and other forms of wood usable for construction.

Local Residents

People who live within a particular area or locality.

Pollution Permits

A system where companies are given allowances to emit a certain amount of pollutants, with the option to buy or sell permits based on their needs.

Pollution Rights

Tradable permits or certificates that allow the holder to emit a specific amount of pollution; used to regulate and limit overall pollution.