The New Classical Model Implies That Substitution of Debt for Tax

question 60

Multiple Choice

The new classical model implies that substitution of debt for tax financing

• A) increases aggregate demand and exerts an expansionary effect on real output.
• B) is highly effective against inflation.
• C) reduces savings because it increases both the current and future tax liability of households.
• D) leaves wealth, and therefore aggregate demand, unchanged because the debt will require higher future tax rates.

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Definitions:

Standard Cost Variances

The differences between the actual costs incurred and the standard costs against which they are measured, often analyzed for materials, labor, and overhead.

Cost of Goods Sold

Represents the total direct costs attributable to the production of goods sold in a company, including materials and labor.

Materials Price Variance

The difference between the actual cost of materials purchased and the expected (standard) cost, indicating how effectively a company controls its materials costs.

Raw Material Purchase

The process of acquiring the basic materials needed for production of goods.