When Government Spending Flows to Areas Where Resources Are Already

question 93

Multiple Choice

When government spending flows to areas where resources are already fully employed,

• A) the additional spending will stimulate strong growth in those areas.
• B) aggregate demand will place downward pressure on the general level of prices.
• C) the coordination problem accompanying the composition of aggregate demand is likely to improve.
• D) the coordination problem accompanying the composition of aggregate demand is likely to worsen.

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Definitions:

Weak Axiom

A principle in consumer theory stating that if a consumer prefers bundle A over bundle B when prices are constant, then the consumer will not choose B over A if the price of A decreases and B's price remains unchanged.

Revealed Preferences

A concept in economics that preferences of consumers can be inferred by observing their purchasing habits and behaviors.

Francs

A former unit of currency in France and other countries, replaced by the Euro in many instances.

Utility Function

An equation that assigns numerical values to different combinations of goods and services, capturing the level of satisfaction or preference that an individual derives from these combinations.