Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced. What will happen to real equilibrium GDP?
A) There will be no change in real equilibrium GDP.
B) Real equilibrium GDP will fall.
C) Real equilibrium GDP will rise.
D) Real equilibrium GDP will initially rise, but then fall below its previous equilibrium value.
C
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The country of Zlatan is in serious financial crisis after the banks of the country suffered huge losses. Most of the loans were granted to customers without any proper verification, resulting in a high rate of default. The government decided to create an Office of Thrift Supervision to insure deposited funds and to ensure that banks do not indulge in risky lending. Which of the following is a
likely consequence of this step? a. Banks will stop purchasing government bonds. b. Banks will stop keeping a certain amount of their reserves as deposits with the central bank. c. Banks will want to ensure that the difference between their assets and liabilities is positive. d. Banks will stop purchasing government bonds.
Over one time horizon or another, Fed policy decisions influence
a. inflation and employment. b. inflation but not employment. c. employment but not inflation. d. neither inflation nor employment.