The Use of Government Purchases (G)as a Fiscal Policy Tool

question 78

Multiple Choice

The use of government purchases (G) as a fiscal policy tool can have an effect on long-run growth in the economy.Under what circumstances might an increase in G cause the level of potential output ( ) to increase?

• A)If the increase in G crowds out private investment.
• B)If the increase in G causes a permanent increase in the marginal propensity to consume,which causes a permanent rightward shift of the AD curve.
• C)If the increase in G is spent on public infrastructure that increases the productivity of private-sector production.
• D)If the increase in G leads to a permanent increase in the level of autonomous saving in the economy.
• E)If the increase in G is offset by an equal decrease in C,I,and NX.

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Definitions:

Combustion Reactions

Chemical reactions that occur when a substance reacts with oxygen, releasing energy in the form of heat and light.

Oxygen Source

Any material or device that produces oxygen, used in various industrial and medical applications.

Explosive Reactions

Chemical reactions that occur with a sudden release of energy, often accompanied by the production of heat and light.

Nitro Groups

Functional groups in organic chemistry consisting of one nitrogen atom connected by a double bond to one oxygen atom and by a single bond to another oxygen atom; they are denoted as NO2 and contribute to the reactivity of molecules.