Which of the Following Is an Accurate Implication of Adopting

question 45

Multiple Choice

Which of the following is an accurate implication of adopting a government spending rule that produces a negative correlation between changes in gov- e rnment spending and the diffe rence between actual GDP and potential GDP?

• A) Changes in taxes should be more effective in stimulating GDP.
• B) Changes in taxes should be less effective in stimulating GDP.
• C) Changes in the money supply should be more effective in stimulating GDP.
• D) C h a n ges in the money supply should be less effe c t ive in stimu l ating GDP.
• E) Both changes in taxes and changes in the money supply should be more effective in stimulating GDP.

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Definitions:

LIFO

The last-in, first-out accounting method of valuing inventories.

Economic Earnings

The real flow of cash that a firm could pay out without impairing its productive capacity.

Liquidity Ratio

A financial metric used to determine a company's ability to pay off its short-term debts with its current assets.

Current Ratio

Current assets/current liabilities. Measures the ability of the firm to pay off its current liabilities by liquidating current assets.