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:

Scenario Analysis

A technique used in finance to evaluate possible future events by considering alternative possible outcomes (scenarios).

Option to Expand

A strategic investment option that gives a business the flexibility to increase its operations or output at a later date.

Golf Course

A large area of land designed for the game of golf, featuring a series of holes with various configurations and hazards.

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An individual or company that engages in the business of real estate development, including acquiring land, financing real estate deals, building or having builders construct projects.