An Increase in Government Spending Will Cause Which of the Following

question 24

Multiple Choice

An increase in government spending will cause which of the following when a liquidity trap situation exists?

• A) The interest rate will decrease.
• B) Output will increase.
• C) Output will not change.
• D) Output will decrease.
• E) The interest rate will increase.

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Definitions:

Marginal Cost

The increase in total cost that arises from producing an additional unit of a good or service.

Average Variable Cost

The total variable costs (costs that change with the level of output) divided by the quantity of output produced.

Average Fixed Cost

The total fixed costs of production divided by the quantity of output produced, illustrating how fixed costs per unit change with output levels.

MC

Marginal Cost, the cost of producing one additional unit of a good.