In the New Keynesian Model, an Increase in Current Government

question 49

Multiple Choice

In the New Keynesian model, an increase in current government spending

• A)decreases output and increases the real wage rate.
• B)decreases output and decreases the real interest rate.
• C)decreases output and increases the real interest rate.
• D)increases output and decreases the real interest rate.
• E)increases output and leaves the real interest rate unchanged.

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Definitions:

SUTA

State Unemployment Tax Act; a tax paid by employers at a state level to fund unemployment benefits for workers who lose their jobs.

FUTA

The Federal Unemployment Tax Act, which imposes a payroll tax on businesses to fund state workforce agencies.

Wages Expense

The total cost incurred by a company for the payment of wages to employees during a specific period.

FICA Tax Rate

The percentage of income that is taken as tax to fund Social Security and Medicare, paid equally by employees and employers.