A $1 Increase in Government Spending on Goods and Services

question 44

Multiple Choice

A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because

• A) government spending is more employment intensive than is either consumption or investment spending.
• B) government spending increases the money supply and a tax reduction does not.
• C) a portion of a tax cut will be saved.
• D) taxes vary directly with income.

---

Definitions:

Public Goods

Goods that are non-excludable and non-rivalrous, meaning they can be used simultaneously by more than one person without diminishing the value or availability to others.

Lack Perfect Information

A market condition where all participants do not have equal or complete information, affecting their decision-making.

Legal Services

Professional services provided by lawyers or legal practitioners to handle legal matters from advisory, litigation, to documentation.

External Cost

Costs that are not borne by the producer or consumer, but by a third party or the environment, such as pollution.