According to Non-Keynesians, How Will an Increase in Government Spending

question 148

Multiple Choice

According to non-Keynesians, how will an increase in government spending financed by borrowing during a recession affect recovery?

• A) Higher future taxes and interest rates will be required to finance the larger debt and this will weaken the recovery.
• B) Repayment of the debt can always be shifted to the future, making it possible to keep tax rates low and thereby strengthen the recovery.
• C) Higher interest payments will increase future government spending, and thereby promote a stronger the recovery.
• D) The increase in government spending will exert a multiplier effect on the economy, leading to a stronger recovery.

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Definitions:

Inductive Reasoning

A method of reasoning in which specific observations lead to a general conclusion or theory.

Deductive Reasoning

The use of general principles to predict specific outcomes. Often uses “if… then” statements.

Technology

The application of scientific knowledge for practical purposes, especially in industry.

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Substances produced by or used in a chemical process, including both natural and synthetic materials.