Figure 7-2
-In the figure above, the shifts F0 to F1 and N0d to N1d may have occurred in an economy subjected to a
A) permanent fiscal deficit.
B) temporary fiscal deficit.
C) permanent increase in the relative price of energy.
D) permanent increase in the rate of growth of the money supply.

Question

Figure 7-2 
-In the figure above, the shifts F0 to F1 and N0d to N1d may have occurred in an economy subjected to a
A) permanent fiscal deficit. 
B) temporary fiscal deficit. 
C) permanent increase in the relative price of energy. 
D) permanent increase in the rate of growth of the money supply.

Quizplus · Accepted Answer

The shifts F0 to F1 and N0d to N1d suggest a decrease in the production of goods and services and an increase in the relative price of energy. This is consistent with a permanent increase in the relative price of energy, as stated in choice C. The other options (A and D) do not provide a convincing explanation for the observed shifts. Choice B is incorrect because temporary fiscal deficits typically do not have a significant impact on the long-term production of goods and services.

Figure 7-2 -In the Figure Above, the Shifts F0 to F1 and to F1