If the Government Increases Spending and There Is a Complete

question 8

Multiple Choice

If the government increases spending and there is a complete direct expenditure offset, then

• A) aggregate demand and real Gross Domestic Product (GDP) will not change.
• B) aggregate demand and real Gross Domestic Product (GDP) will increase by the amount of the spending increase.
• C) the price level will drop.
• D) the government spending multiplier will be greater than zero.

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Definitions:

Novation

The act of replacing an old obligation with a new one, thereby extinguishing the original obligation.

Privity of Contract Rule

A legal principle stating that only parties involved in the creation of a contract can sue or be sued under the terms of that contract.

Statutory Assignment

A legal transfer of a right from one party to another, made under and governed by statutory law.

Negotiable Instrument

A written document guaranteeing the payment of a specific amount of money either on demand or at a set time.