Which of the Following Best Explains Why a $10 Billion

question 131

Multiple Choice

Which of the following best explains why a $10 billion increase in transfer payments has a smaller impact on aggregate demand than a $10 billion increase in government purchases?

• A) An increase in government purchases can be paid for with a bond issue while transfer payments must be funded by taxes.
• B) An increase in transfer payments can be paid for by borrowing, but an increase in government purchases must ultimately be funded by tax increases.
• C) Households save part of an increase in income while the entire increase in government purchases represents additional spending.
• D) An increase in transfer payments does not create a multiplier effect, but an increase in government purchases does.

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Definitions:

Dopamine System

Neural pathways in the brain that utilize dopamine as a neurotransmitter, involved in reward, motivation, and many aspects of behavior and cognition.

Parkinson's Disease

A progressive neurological disorder marked by tremor, muscular rigidity, and slow, imprecise movement, chiefly affecting middle-aged and elderly people.

Midbrain

A portion of the central nervous system associated with vision, hearing, motor control, sleep/wake, arousal (alertness), and temperature regulation.

Hypothalamus

A region of the forebrain below the thalamus that coordinates both autonomic nervous system and pituitary, controlling body temperature, thirst, hunger, and other homeostatic systems, and involved in sleep and emotional activity.