-Refer to the Above Figure

question 119

Multiple Choice

-Refer to the above figure. Suppose the economy is at E and the government uses an expansionary fiscal policy to move the aggregate demand curve to AD2. In the end, the aggregate demand curve is still AD1. A possible reason for this is that

• A) the economy is already at full employment.
• B) the increased borrowing causes higher interest rates, which encourage people to save more and increase investment spending due to the extra saving.
• C) people increase saving because they anticipate higher future taxes, resulting in a reduction in current consumption spending that offsets the increased government spending.
• D) some of the increased government spending is not counted in GDP.

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Definitions:

Specific

Clearly defined or identified; precise or exact.

Profitability Gap

The difference between the actual profitability of a business and its potential profitability under optimal conditions.

Investment Intensity

Indicates the level of capital required to generate revenue within a business or industry, reflecting the nature of assets and resources needed.

Value-Added Activities

Operations or processes that increase the worth of a product or service to customers, thereby enhancing its market value.