Expansionary Fiscal Policy Can Be Successful Without a Negative Impact

question 15

Multiple Choice

Expansionary fiscal policy can be successful without a negative impact on the level of investment if

• A)the government spending increase is financed by a tax increase
• B)the Fed undertakes open market sales at the same time
• C)it is implemented via an investment subsidy rather than a cut in personal income taxes
• D)money demand is completely interest inelastic
• E)it is implemented through a cut in personal income taxes rather than an increase in government purchases

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Definitions:

Market Equilibrium

A situation in which market supply and demand balance each other, and as a result, prices become stable.

Pareto Optimality

A state of allocation of resources in which it is impossible to make any one individual better off without making at least one individual worse off.

Partial Equilibrium

An analysis in economics focusing on the equilibrium of a specific sector or market without considering the whole economy.

Equity

The value that would be returned to shareholders if a company's assets were liquidated and all its debts repaid.