In a Binding Situation, a Decrease in Government Spending

question 86

Multiple Choice

In a binding situation, a decrease in government spending

• A) shifts the AD curve to the right.
• B) shifts the AD curve to the left.
• C) does not shift the AD curve.
• D) causes the AD curve to become horizontal.

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Definitions:

GDP

Gross Domestic Product, which is the total market value of all final goods and services produced within a country in a specific period.

Real GDP

Gross Domestic Product adjusted for inflation, providing a more accurate measure of economic growth by reflecting the value of all goods and services produced at constant prices.

Deflation

A drop in the overall cost of goods and services, frequently resulting from a decrease in the availability of money or credit.

Inflation

The measurement of how swiftly the overall prices of goods and services increase, eroding the power to buy.