The Reduction in Investment Spending in the Long Run Results

question 32

Multiple Choice

The reduction in investment spending in the long run results from an increase in government expenditures because:

• A) the tax rate increases.
• B) real interest rates increase.
• C) real interest rates decrease.
• D) nominal interest rates decrease.

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Definitions:

Diminishing Marginal Utility

The principle that as a person consumes more of a good, the satisfaction (utility) from consuming each additional unit decreases.

Maximin Criterion

The claim that the government should aim to maximize the well-being of the worst-off person in society.

Equal Income

A hypothetical or policy-driven scenario where all individuals or households receive the same amount of income.

Transitory Income

Income that is temporary or not consistent, such as bonuses, gifts, or any other earnings that are not regular or guaranteed.