How Does the Spending Multiplier Compare Between a $1,000 Increase

question 121

Multiple Choice

How does the spending multiplier compare between a $1,000 increase in government spending and a $1,000 decrease in taxes collected?

• A) An increase in government spending has a greater spending multiplier than an equivalent tax decrease.
• B) An increase in government spending has a smaller spending multiplier than an equivalent tax decrease.
• C) An increase in government spending has the same spending multiplier as an equivalent tax decrease.
• D) Neither an increase in government spending nor a decrease in taxes generates any multiplier at all.

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Definitions:

Shareholders' Equity

The amount of capital that shareholders have invested in a company, equal to the company's total assets minus its total liabilities.

Fixed Assets

Long-term tangible assets, such as property, plant, and equipment, used in the operations of a business and not expected to be converted to cash in the near term.

Cash Dividends

Payments made by a corporation to its shareholder members. It's the share of the company's profits, decided and managed by the board of directors, and paid out to shareholders.