The Fixed Price Level That Was Assumed in Chapters 3

question 5

Multiple Choice

The fixed price level that was assumed in Chapters 3 through 5 implied that

• A) there is always full employment.
• B) there is always less than full employment.
• C) the aggregate supply curve is upward sloping to the left.
• D) the aggregate supply curve is horizontal.

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Definitions:

Lower Interest Rates

A monetary policy strategy where central banks reduce the cost of borrowing money in an effort to stimulate economic growth.

Crowding Out

A situation in which increased government spending leads to a reduction in private sector spending and investment.

Contractionary Gap

A situation where an economy's real GDP is lower than its potential GDP, indicating underutilization of resources.

Cyclically Balanced

An economic situation where fiscal policy is designed to be neutral over the business cycle, allowing for temporary deficits or surpluses but aiming for a long-term balance.