Refer to the Above Graph

question 52

Multiple Choice

Refer to the above graph. The economy was initially in equilibrium at point 3 and interest rates increased by 4 percentage points because of government deficit financing. The public spending, however, improves business confidence and activity that exactly offsets the potential crowding-out effect. This situation would result in a new equilibrium at point:

• A) 2
• B) 3
• C) 4
• D) 5

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