An Aide to a U

question 109

Multiple Choice

An aide to a U.S.Congressman computes the effect on aggregate demand of a $20 billion tax cut.The actual increase in aggregate demand is less than the aide expected.Which of the following errors in the aide's computation would be consistent with an overestimation of the impact on aggregate demand?

• A)The actual MPC was larger than the MPC the aide used to compute the multiplier.
• B)The aide thought the tax cut would be permanent,but the actual tax cut was temporary.
• C)The increase in income shifted money demand less than the aide had anticipated.
• D)The increase in income resulted in investment rising more than the aide had anticipated.

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Definitions:

Equity

The residual interest in the assets of an entity after deducting liabilities, representing ownership interest in a company.

Expenses

Financial outlays that are necessary for the operations of a business, which can include both fixed and variable costs.

Supplies

Items that are used in the operation of a business but do not directly enter into the finished product.

Accounts Payable

Money owed by a company to its suppliers or creditors for goods and services received.