Which of the Following Is an Accurate Statement About the Relative

question 2

Multiple Choice

Which of the following is an accurate statement about the relative size of government purchases and government spending?

• A) Because spending is the same as purchasing, the measures must be the same.
• B) Purchases will be greater than spending because of deficit and surplus adjustments.
• C) Spending includes transfer payments like social security, but purchases do not.
• D) Neither includes provision of government services by contract with private firms.

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Definitions:

MPC (Marginal Propensity to Consume)

The proportion of an increase in income that is spent on consumption rather than being saved.

Government Purchases Multiplier

The ratio of change in aggregate economic output to a change in government spending, used to analyze the effect of fiscal policy on the economy.

Aggregate Demand

Total economic need for all goods and services within an economy, pegged at a designated price level during a chosen period.

Government Expenditures

The total amount of money spent by the government in a fiscal period, including spending on goods, services, and public projects.