Which of the Following Correctly Describes the Spending Multiplier

question 103

Multiple Choice

Which of the following correctly describes the spending multiplier?

• A) The initial change in consumption, investment, government spending, or net exports divided by the change in equilibrium GDP.
• B) An initial increase in aggregate expenditures divided by the equilibrium GDP.
• C) An initial increase in aggregate expenditures divided by the change in equilibrium GDP.
• D) The ratio of the change in real GDP to an initial change in any component of aggregate expenditures.

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Definitions:

Tax Bracket

A range of income subject to a particular tax rate under a progressive tax system, where higher income levels are taxed at higher rates.

Inheritance

Assets received from someone who has died, possibly subject to taxes depending on the value and the beneficiary's relationship to the deceased.

Holding Period

The length of time an investment is held by an investor, influencing tax treatment of gains or losses upon disposal.

Adjusted Basis

The net cost of an asset after adjusting for various tax-related items including improvements, sales, depreciation, and damage.