Which of the Following Best Explains Why a $10 Billion

question 131

Multiple Choice

Which of the following best explains why a $10 billion increase in transfer payments has a smaller impact on aggregate demand than a $10 billion increase in government purchases?

• A) An increase in government purchases can be paid for with a bond issue while transfer payments must be funded by taxes.
• B) An increase in transfer payments can be paid for by borrowing, but an increase in government purchases must ultimately be funded by tax increases.
• C) Households save part of an increase in income while the entire increase in government purchases represents additional spending.
• D) An increase in transfer payments does not create a multiplier effect, but an increase in government purchases does.

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Definitions:

Sociocultural Theorist

A researcher or scholar who studies how societal and cultural contexts influence human behavior and cognitive development.

Attachment Formation

The process by which an emotional bond is developed, primarily in early childhood, influencing relationships throughout life.

Cultural Groups

Collections of people who share common values, beliefs, practices, and traditions, often defined by nationality, ethnicity, religion, or other unifying cultural elements.

Social Referencing

The tendency for individuals, especially infants and children, to look to others in their environment to obtain cues for how to react in certain situations.