Which of the Following Dampens the Effect on GDP of a Change

question 112

Multiple Choice

Which of the following dampens the effect on GDP of a change in government spending?

• A) The money supply changes when real income changes.
• B) Taxes change when government spending changes.
• C) Money demand changes when real income changes.
• D) People do not expect much from the government.
• E) Aggregate spending does not respond to changes in the interest rate.

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Definitions:

Inflation Rate

The percentage increase in the general level of prices for goods and services over a period, reducing purchasing power.

Money Rate

Refers to the interest rate or the cost of borrowing money, which can influence economic activity by affecting consumer spending and investment.

Real Rate

The interest rate adjusted for inflation, providing a more accurate measure of the return on investment.

Inflationary Premium

The part of an asset's interest rate that compensates investors for the loss of purchasing power due to inflation.