Which of the following is an example of expansionary fiscal policy?
a. Increase taxes.
b. Decrease government spending.
c. Increase government spending.
d. Increase taxes and decrease government spending equally.
Question 2
Suppose that the Fed makes a 100 billion open-market sale of Treasury bonds, and the money multiplier is 6 . Which of the following impacts aremostlikely to result?
a. The money supply shifts inward, and the equilibrium interest rate rises in the money market.
b. The money supply shifts outward, and the equilibrium interest rate falls in the money market.
c. Investment declines, causing the aggregate demand curve to shift leftward, reducing equilibrium real GDP and thus slowing the economy.
d. Both a. and c. are correct.
e. Both b. and c. above are correct.
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