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

question 117

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 (Y*) 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:

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