In the Model Where G = QT, When Q Increases

question 42

Multiple Choice

In the model where G = qT, when q increases, government spending, if chosen optimally, should

• A) increase.
• B) decrease.
• C) stay the same.
• D) decrease at the same rate as taxes.
• E) decrease faster than taxes.

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Definitions:

Short Run

A period in economic analysis during which at least one input is fixed, limiting the ability of firms to adjust to changes in market conditions.

Marginal Product

The growth in production resulting from one more unit of input, while keeping all other inputs the same.

Total Product

The aggregate amount of goods or services generated by a business given a specific amount of resources.

Diminishing Rate

A principle stating that if one factor of production is increased while others are held constant, the incremental gains in output will eventually decrease.