An Example of a Fiscal Policy Designed to Decrease Real

question 80

Multiple Choice

An example of a fiscal policy designed to decrease real GDP is

• A) an increase in taxes.
• B) an increase in government expenditure.
• C) a cut in taxes.
• D) None of the above answers is correct.

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Definitions:

Substitution Effect

A shift in buying habits triggered by variations in the comparative costs of products, prompting consumers to switch their preferences from one product to another.

Income Effect

The income effect describes the change in an individual's or economy's income and how that change will impact the quantity demanded of a good or service.

Income Effect

The change in consumption resulting from a change in real income, with real income typically changing due to changes in prices.

Higher Wage

A payment for labor services that is above the average or minimum rate typically offered in the market or sector.