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:

Prototype

An original model or preliminary version from which other forms are developed or copied.

Mental Category

A cognitive process that involves grouping or classifying objects, events, or ideas based on shared properties or characteristics.

Multitasking

The ability to perform more than one task or activity over a short period of time.

Mental Set

A cognitive bias that involves approaching a problem in a particular way, often one that has been successful in the past, which may block or delay the identification of alternative solutions.