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Figure 16-2 -Assume That a Contractionary Monetary Policy Has Shifted the Aggregate

Question 57

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Figure 16-2 Figure 16-2 -Assume that a contractionary monetary policy has shifted the aggregate demand curve in Figure 16-2 from D<sub>0</sub>D<sub>0</sub> to D<sub>1</sub>D<sub>1</sub>.Fiscal authorities who wish to restore real GDP to the full-employment level will A) run a budget surplus by increasing taxes or cutting government spending. B) run a balanced budget to prevent the interest rate from rising and cutting off investment. C) run a budget deficit by cutting taxes or increasing government spending. D) ignore the change in monetary policy since it has no effect on fiscal policy.
-Assume that a contractionary monetary policy has shifted the aggregate demand curve in Figure 16-2 from D0D0 to D1D1.Fiscal authorities who wish to restore real GDP to the full-employment level will


A) run a budget surplus by increasing taxes or cutting government spending.
B) run a balanced budget to prevent the interest rate from rising and cutting off investment.
C) run a budget deficit by cutting taxes or increasing government spending.
D) ignore the change in monetary policy since it has no effect on fiscal policy.

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