According to the Spending Allocation Model, Which of the Following

question 64

Multiple Choice

According to the spending allocation model, which of the following statements is correct?

• A)Tax cuts and increases in government purchases have the same effect on the economy.
• B)Tax cuts cause the real interest rate to fall and increases in government purchases cause the interest rate to rise.
• C)Tax cuts cause the real interest rate to rise and increases in government purchases cause the interest rate to fall.
• D)All else held equal, a tax cut has no effect on the nongovernment share of GDP.
• E)All else held equal, an increase in government purchases has no effect on the nongovernment share of GDP.

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Definitions:

EPS

Earnings Per Share, a key financial indicator used to measure the profitability of a company, calculated as the net income divided by the number of outstanding shares.

Intrinsic Value

The inherent worth of an asset, distinct from its market value, based on its fundamental characteristics.

ROE

Return on Equity, a measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested.

Required Return

The minimum expected return an investor demands for holding a particularly risky investment.