An Increase in Government Spending Financed by Borrowing Changes People's

question 288

Multiple Choice

An increase in government spending financed by borrowing changes people's expectations about future taxation such that current consumption expenditures

• A)fall. The increase in expenditures makes it likely that future taxes will create smaller distortions.
• B)fall. The increase in expenditures makes it likely that future taxes will create larger distortions.
• C)rise. The increase in expenditures makes it likely that future taxes will create smaller distortions.
• D)rise. The increase in expenditures makes it likely that future taxes will create larger distortions.

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Definitions:

Inelastic Supply

A situation in which the supply of a good or service is not significantly affected by changes in price, characterized by a relatively steep supply curve.

Underage Drinking

The consumption of alcoholic beverages by individuals below the legal drinking age in their respective jurisdictions.

Tax

A compulsory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Deadweight Loss

A decrease in economic efficiency due to the failure to achieve or the impossibility of achieving equilibrium for a good or service.