Use the Following to Answer Questions

question 108

Multiple Choice

Use the following to answer questions:
-(Figure: Fiscal Policy with a Fixed Money Supply) Refer to 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.

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Definitions:

Refund Risk

The risk that a debt issuer will repay borrowed funds before the maturity date, typically in a declining interest rate environment.

Working Capital Policy

A strategic approach to managing a company's short-term assets and liabilities to ensure it has sufficient liquidity to meet its short-term obligations.

Temporary Financing

Short-term loans or credit facilities intended to provide immediate liquidity or cover a short-term funding gap until long-term financing can be arranged.

Short-Term Assets

Assets expected to be converted into cash, sold, or consumed within one year or the operating cycle, whichever is longer.