Figure: Aggregate Demand Shifts 3 Refer to the Figure

question 243

Multiple Choice

Figure: Aggregate Demand Shifts 3 Refer to the figure.If the government lowers its spending growth so that the AD curve shifts from AD₁ to AD₂,the multiplier effect will cause the AD curve to:

• A) shift back to AD₁.
• B) remain at AD₂.
• C) shift farther to AD₃.
• D) shift all the way out to AD₄.

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Definitions:

Capital Budgeting

The whole process of analyzing projects and deciding whether they should be included in the capital budget.

Capital Asset Pricing Model

A model that describes the relationship between systematic risk and expected return for assets, particularly used in the pricing of risky securities.

Expected Return

The weighted average of all possible returns of an investment, considering all risks and the likelihood of each outcome.

Well-diversified Portfolio

An investment portfolio with a mix of assets designed to reduce exposure to risk by spreading investments across various sectors or asset classes.