In the New Classical Model, a $100 Billion Increase in Government

question 54

Multiple Choice

In the new classical model, a $100 billion increase in government purchases financed by borrowing will

• A) increase the real interest rate, which will crowd out private spending.
• B) lead to a $100 billion increase in real GDP.
• C) lead to a $400 billion increase in real GDP if the marginal propensity to consume is three-fourths.
• D) leave the interest rate, aggregate demand, and real output unchanged.

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Definitions:

Earnings Per Share

Earnings per share (EPS) is a financial metric that divides a company's profit by the number of outstanding shares, indicating the profitability attributed to each share.

Par Value

The nominal or face value of a stock or bond as stated by the issuing company, not necessarily reflecting its market value.

Statutory Restriction

Legal limitations or constraints, often imposed by law, that dictate how an organization can operate or use certain resources.

Contractual Restriction

A limitation or condition explicitly outlined in a contract that dictates the actions that parties to the contract are obligated to follow or are prohibited from taking.