Question

QUESTION 21

1. Event: Decrease in government spending due to concerns about increasing debt. (Long Run)

   Question: What is the change in aggregate demand (AD)?

   	a.	Increase
   	b.	Decrease
   	c.	No change
   	d.	Indeterminate

QUESTION 22

1. Event: Decrease in government spending due to concerns about increasing debt. (Long Run)

   Question: What is the change in short run aggregate supply (SRAS)?

   	a.	Increase
   	b.	Decrease
   	c.	No change
   	d.	Indeterminate

  

QUESTION 23

1. Event: Decrease in government spending due to concerns about increasing debt. (Long Run)

   Question: What is the change in long run aggregate supply (LRAS)?

   	a.	Increase
   	b.	Decrease
   	c.	No change
   	d.	Indeterminate

QUESTION 24

1. Event: Decrease in government spending due to concerns about increasing debt. (Long Run)

   Question: What is the change in equilibrium price level?

   	a.	Increase
   	b.	Decrease
   	c.	No change
   	d.	Indeterminate

QUESTION 25

1. Event: Decrease in government spending due to concerns about increasing debt. (Long Run)

   Question: What is the change in equilibrium real gross domestic product (RGDP)?

   	a.	Increase
   	b.	Decrease
   	c.	No change
   	d.	Indeterminate

Answer 1

If there is a decrease in the government spending, aggregate spending will decline. Aggregate demand will shift to the left. In the long run because of the decline in the prices, aggregate supply curve in shift to the right exhibiting an increase in the production. Real GDP remains unchanged because of opposite shifts in the aggregate demand and aggregate supply curves. Price level will however fall further

21) option B is correct

22) option A is correct

23) option C is correct

24) option B is correct

25) option C is correct.