Suppose That There Are Both Multiplier and Crowding Out Effects

question 137

Multiple Choice

Suppose that there are both multiplier and crowding out effects but not accelerator effects.An increase in government expenditures would definitely

• A)shift aggregate demand right by a larger amount than the increase in government expenditures.
• B)shift aggregate demand right by the same amount as an the increase in government expenditures.
• C)shift aggregate demand right by a smaller amount than the increase in government expenditures.
• D)None of the above is correct.

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Definitions:

Bargain Purchase Option

An option in a lease agreement that allows the lessee to purchase the leased asset at the end of the lease term at a price significantly lower than the expected fair market value.

Lease Term

The fixed, non-cancellable period of time for which a lease is agreed upon between the lessee and the lessor.

GAAP

Generally Accepted Accounting Principles, the standard framework of guidelines for financial accounting.

Capital Lease

A long-term lease agreement that designates the lessee (the person who rents the asset) as having the financial responsibilities and benefits of ownership.