What Effect Would an Increase in Transfer Payments Combined with a Decrease

question 137

Multiple Choice

What effect would an increase in transfer payments combined with a decrease in government purchases have on AD?

• A)It would have an indeterminate effect on AD.
• B)It would increase AD.
• C)It would leave AD unchanged.
• D)It would decrease AD.

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Definitions:

Marginal Utility

The added satisfaction or usefulness obtained from using one more unit of a product or service.

Total Utility

The total satisfaction or benefit received by consuming a particular quantity of a good or service.

Price Ratio

The relative price of one good or service compared to another, often indicating how many units of one good can be exchanged for one unit of another.

Price

The monetary value anticipated, needed, or dispensed for acquiring something.