Assume the economy is initially operating at the natural level of output. Now suppose a budget is passed that calls for a decrease in government spending. This fiscal contraction will, in the medium run, have no effect on which of the following?
A) Output and the interest rate.
B) The price level and the interest rate.
C) Output and consumption.
D) Unemployment and investment.
E) The interest rate and unemployment.

Question

Quizplus · Accepted Answer

The Answer of Assume the economy is initially operating at the natural level of output. Now suppose a budget is passed that calls for a decrease in government spending. This fiscal contraction will, in the medium run, have no effect on which of the following?
A) Output and the interest rate.
B) The price level and the interest rate.
C) Output and consumption.
D) Unemployment and investment.
E) The interest rate and unemployment.

Assume the Economy Is Initially Operating at the Natural Level