If the Government Increases Its Spending, Which of the Following

question 21

Multiple Choice

If the government increases its spending, which of the following would tend to reduce the size of the multiplier?

• A) higher taxes for the finance of the additional spending
• B) higher interest rates as the result of additional borrowing to finance the spending
• C) the flow of the spending into sectors where the unemployment rate is low
• D) all of the above

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Definitions:

GDP

Gross Domestic Product, the total value of all goods and services produced within a country's borders in a specific time period.

Net Domestic Product

The total value of all goods and services produced within a country in a specific time period, minus the depreciation on its capital goods.

National Income

The total value of all goods and services produced by a country's economy over a specific period, often used as a measure of the economic health of a nation.

Government Expenditures

The total amount spent by the government in a particular period, including spending on goods, services, and transfer payments.