• The government of the United States is stimulating the economy in 2021 with a package of temporary fiscal expenditure (i.e., public consumption) in addition to what it had planned to spend at the beginning of the year. We want to know how this package affects the U.S. economy this year relative to what would have happened in the absence of the package. Assume that the interest rate, aggregate price level, expected inflation rate, and other net taxes in the U.S. are all exogenously given. In this situation, as a result of the temporary increase in fiscal expenditure (and compared to what would have taken place in its absence), the equilibrium level of U.S. GDP

a.may increase or decrease.

b.will decrease.

c.will not change.

d.will increase.

• In the scenario described in the question above, we would like to explore in more detail how the fiscal stimulus affects the components of GDP in the short-run equilibrium of the economy. As a result of the temporary increase in fiscal expenditure this year,

a.both private consumption and net exports increase.

b.both private consumption and net exports decrease.

c.private consumption increases and net exports decrease.

d.private consumption remains unchanged, but net exports increase.

e.private consumption increases, but net exports remain unchanged.