If the Government Increases Taxes While Holding Expenditures Constant

question 4

Multiple Choice

If the government increases taxes while holding expenditures constant,

• A)the bond supply curve will shift to the left and the equilibrium interest rate will fall.
• B)the bond supply curve will shift to the right and the real interest rate will fall.
• C)government borrowing will be increased.
• D)the government's deficit will increase.

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Definitions:

Economies of Scale

The cost advantages that a business obtains due to expansion, where the average cost per unit of output decreases with increasing scale.

Diseconomies of Scale

The situation where long-run average costs start to increase as the scale of operation grows beyond a certain point, leading to increased per-unit costs.

Diminishing Returns

A principle in economics indicating that adding more of one factor of production, while holding others constant, will at some point yield lower incremental per-unit returns.

Constant Costs

Costs that remain the same in total, regardless of changes in the volume of goods or services produced.