Suppose the government reduces its budget deficit at the same time that energy prices rise sharply. Which of the following is most likely to happen?
a. The price level will rise, since higher energy prices increase the cost of production.
b. Real GDP will fall since both events will tend to cause an economic contraction.
c. The price level will fall because the aggregate demand curve has shifted leftward.
d. Real GDP will rise as less government spending leads to more opportunities for the private sector.
e. Both the price level and real GDP will fall.
Question 2
Which of the following is true of exports and imports?
a. Both imports and exports are added to a nation's gross domestic product (GDP).
b. Both imports and exports are subtracted from a nation's gross domestic product (GDP).
c. Imports are added and exports are subtracted from a nation's gross domestic product (GDP).
d. Exports are added and imports are subtracted from a nation's gross domestic product (GDP).
e. Neither imports nor exports are included in a nation's gross domestic product (GDP).
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