In the DSGE Framework, Prospects for a "Fiscal Cliff" in the Fall

Multiple Choice

In the DSGE framework, prospects for a "fiscal cliff" in the fall of 2012 increases ________ about the future leading firms to ________, which would ________.

A) uncertainty; delay investment; slow economic activity
B) federal surpluses; hire more workers; decrease unemployment
C) state spending; reduce pensions; reduce the labor supply
D) tax rates; increase investment; improve TFP
E) interest rates; reduce investment; lead to better long-term growth