The adverse impact of a negative aggregate demand shock is ...

[Mr3Hunna]

Question 1

Without targeting the deficit, which of the following is likely to occur after a negative aggregate demand shock?

◦ Y↓ ⇒ T↓ ⇒ deficit↑ ⇒ G↓ ⇒ AD↑ ⇒ Y↑
◦ Y↓ ⇒ T↓ ⇒ deficit↑
◦ Y↓ ⇒ T↓ ⇒ deficit↑ ⇒ G↓ ⇒ AD↓ ⇒ Y↓
◦ Y↓ ⇒ T↓ ⇒ deficit↓

Question 2

The adverse impact of a negative aggregate demand shock is reduced when the government does not target the deficit because

◦ targeting the deficit causes further negative aggregate demand shocks.
◦ negative aggregate demand shocks do not affect the deficit.
◦ the economy is always producing potential output.
◦ not targeting the deficit causes positive aggregate demand shocks.

[popopong]

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[Mr3Hunna]

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[popopong]

Welcome