Refer to the above figure. The government has just engaged in expansionary fiscal policy shifting the aggregate demand curve from AD1 to AD2. Interest rates have started to rise. Which of the following statements is TRUE in the short run?
A. Real GDP will fall back to $11 trillion since the effect that increased government spending has on real GDP is short lived.
B. Real GDP will end up somewhere between $11 and $14 trillion as businesses and consumers reduce their spending in response to the increase in interest rates.
C. Real GDP will go beyond $14 trillion as businesses and consumers react to the increase in interest rates.
D. Real GDP will be $14 trillion since the effect of government spending is not influenced by interest rates.
Answer: B
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A) stayed roughly constant. B) decreased. C) increased. D) would have increased if the government had intervened.
According to the World View titled "Income Share of the Rich," in which of the following would the top tenth of the population be most likely to receive the highest percentage of the country's income?
A. Canada. B. Japan. C. South Africa. D. Namibia.