All Else Being Equal, an Increase in Government Spending Would

question 100

Multiple Choice

All else being equal, an increase in government spending would shift the ______ line to the ______, causing interest rates to _______ and the trade balance to _______.

• A) LM; right; fall; fall
• B) IS; right; rise; rise
• C) LM; left; rise; rise
• D) IS; right; fall; fall

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Definitions:

Forward Exchange Rate

A contractually fixed exchange rate for the future exchange of currencies at a specified date, used to hedge against foreign exchange risk.

Arbitrage

The simultaneous purchase and sale of the same assets in different markets to exploit price differences for a profit.

Risk-free Rate

The expected yield from an investment that carries no risk of losing money, often identified by the returns on government bonds.

Futures Market

A financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future.