Fiscal Policy Analysis Indicates That Large Tax Increases During a Severe

question 50

Multiple Choice

Fiscal policy analysis indicates that large tax increases during a severe recession will result in

• A) an increase in the incentive to earn and the maintenance of a balanced federal budget.
• B) higher tax revenues and an expansion in government spending.
• C) smaller budget deficits, which will speed an economic recovery.
• D) a reduction in aggregate demand and a worsening of the recession.

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Definitions:

State Government

The government of a specific state within a country, responsible for governing matters not reserved by the federal government.

Demand Curve

A graphical representation showing the relationship between the price of a good and the quantity demanded by consumers at those prices.

Marginal Revenue

The extra revenue gained by selling an additional unit of a product or service.

Total Cost

The sum of all expenses incurred in the production of goods or services, including fixed and variable costs.