Refer to the Graph Above

question 2

Multiple Choice

Refer to the graph above. Assume that the economy is in a recession with a price level of P₁ and output level Q₁. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output?

• A) P₂ and Q₄
• B) P₁ and Q₁
• C) P₂ and Q₂
• D) P₁ and Q₃

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Definitions:

Retained Earnings

The portion of net income that is retained by the corporation rather than distributed to its owners as dividends, typically used for reinvestment in the business or paying down debt.

Stockholders' Equity

The remaining interest in a company's assets after all debts have been subtracted, indicating the owners' stake.

Stated Value

A nominal value assigned to no-par shares by the issuing company, distinct from market value.

Par Value

The face value of a share of stock, as stated in the corporate charter, which may be unrelated to its market value.