Assume the government decides to reduce spending in order to reduce the budget deficit, which it financed by borrowing in the real credit market. Where and how should you begin your analysis when analyzing the chain reaction of economic interactions?
a. Start the analysis in the real goods market with aggregate demand shifting to the left.
b. Start the analysis in the real goods market with aggregate demand shifting to the right.
c. Start the analysis in the real goods market with aggregate supply shifting to the left.
d. Start the analysis in the real goods market with aggregate supply shifting to the right.
e. Start the analysis in the real credit market with demand for real credit shifting to the left.
Question 2
If you take 500 out of a savings deposit and put it into a checking account, the immediate effect (do not consider the money multiplier):
a. M1 rises, M2 remains the same, and the monetary base remains the same.
b. M1 falls, M2 falls, and the monetary base remains the same.
c. M1 rises, M2 rises, and the monetary base remains the same.
d. M1, M2, and the monetary base rise.
e. M1, M2, and the monetary base remain the same.
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