Use the Following to Answer Questions

question 304

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 increases and the Federal Reserve expands the money supply. According to this model:

• A)real GDP might increase in the short run, but inflation can lead to a return to the original level of real GDP in the long run.
• B)real GDP will decrease because the government expanded deficit spending.
• C)real GDP will decrease, but not as much as if the Federal Reserve had contracted the money supply.
• D)interest rates will decrease.

---

Definitions:

Myriapods

A group of arthropods that includes centipedes and millipedes, characterized by having numerous legs.

Deuterostomes

A classification of animals characterized by the development of the anus from the first opening in the embryo, with the mouth forming later.

Echinoderms

A phylum of marine animals known for their radial symmetry and include starfish, sea urchins, and sea cucumbers.

Water-Vascular System

A unique hydraulic system used by echinoderms (such as starfish and sea urchins) for locomotion, feeding, and gas exchange.