In the Keynesian Model,an Increase in Government Purchases Affects Output

question 73

Multiple Choice

In the Keynesian model,an increase in government purchases affects output by

• A)increasing labour supply,because workers feel effectively poorer.
• B)increasing saving to pay for future taxes,lowering the real interest rate and shifting the IS curve to the left.
• C)increasing the real interest rate due to crowding out,reducing aggregate demand.
• D)increasing aggregate demand as national saving declines.

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Definitions:

Dividend Irrelevance Theory

A theory proposed by Modigliani and Miller that suggests dividend policies do not affect a company’s capital structure or stock price in a perfect market.

Dividend Policy

A company's approach to distributing profits back to its shareholders, whether through cash dividends or share repurchases.

Dividend Irrelevance Theory

A theory suggesting that the dividend policy of a company is irrelevant to its value or the cost of capital and investment decisions.

"Bird in the Hand" Theory

The investment theory suggesting that investors prefer the certainty of dividend payments over potential capital gains because of the perceived lower risk.