Suppose the Multiplier Is 4 and Lump-Sum Taxes Are Increased

question 21

Multiple Choice

Suppose the multiplier is 4 and lump-sum taxes are increased by $16 in a closed economy.We can predict that:

• A)GDP will increase by $64.
• B)GDP will decrease by $64.
• C)the aggregate expenditures schedule will shift downward by $12.
• D)inflation will occur.

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Definitions:

Garden Gnomes

Decorative statues often placed in gardens, depicting mythological creatures known as gnomes.

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded, typically downward sloping, indicating that demand decreases as price increases.

Plaster

A building material made of lime or gypsum, water, and sand, used for coating walls and ceilings.

Labor

The deployment of human manpower, both in physical form and intellectual capacity, for generating goods and services.