During Normal Times, the Multiplier Effect of an Increase in Government

question 10

Multiple Choice

During normal times, the multiplier effect of an increase in government spending financed by taxes will be

• A) strengthened, if the additional spending flows into sectors of the economy where the unemployment rates are low.
• B) weakened by an offsetting reduction in spending due to the higher taxes.
• C) unaffected, as long as the higher taxes are in the future.
• D) strengthened, if corporate tax rates are increased and personal tax rates remain unchanged.

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Definitions:

Promissory Estoppel

The legal enforcement of an otherwise unenforceable contract due to a party’s detrimental reliance on the contract.

Negligent Misrepresentation

A false statement of material fact made by a party who thinks it is true but who would have known the truth about the fact had he or she used reasonable care to discover or reveal it.

Statute of Frauds

A legal doctrine requiring certain contracts to be in writing and signed by the parties involved to be enforceable.

Lifetime Employment

A practice, often associated with Japanese companies, where employees are hired with an understanding or expectation of employment security until retirement.