Essay
Suppose you read in the paper that government purchases will decrease by $50 billion. Next to the article are three forecasting companies' predictions of the effect the reduction in government purchases will have on real GDP. The predictions are:
Firm A: There will be no other changes in spending, and real GDP will fall by $50 billion.
Firm B: There will be no other changes in spending, and real GDP will fall by $75 billion.
Firm C: Investment will increase by $50 billion, and real GDP will remain the same.
Which forecast do you believe?
Correct Answer:
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You should not believe Firm A. This firm...View Answer
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Correct Answer:
Verified
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