If Aggregate Demand Intersects Aggregate Supply in the Horizontal Range

question 49

Multiple Choice

If aggregate demand intersects aggregate supply in the horizontal range of the aggregate supply curve, then, other things equal, an increase in government spending will:

• A)raise real GDP by the amount indicated by the government spending multiplier and leave the price level unchanged.
• B)lower real GDP by an amount equal to the increased spending and reduce inflation.
• C)raise the price level and leave real GDP unchanged.
• D)raise both real GDP and the price level by a multiple of the initial spending increase.
• E)have no effect on real GDP or the price level, because all private investment will be crowded out.

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Definitions:

US Dollar

The official currency of the United States, widely used as a standard of exchange in international markets.

Euro

The official currency of nineteen of the twenty-seven European Union countries, known collectively as the Eurozone.

Revenue

The total amount of income generated by the sale of goods or services related to a company's primary operations.

Operating Expenses

Costs associated with running the day-to-day operations of a business, such as rent, utilities, and payroll, but excluding costs related to production.