Assuming That the Government Cannot Act Immediately and the Multiplier

question 186

Multiple Choice

Assuming that the government cannot act immediately and the multiplier takes effect, ultimately creating a recessionary gap of $1 billion dollars. To close this gap, government purchases must be:

• A) increased by $1 billion.
• B) decreased by $1 billion.
• C) increased by more than $1 billion.
• D) increased by less than $1 billion.

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Definitions:

Capital

Financial assets or the financial value of assets, such as funds held in deposit accounts, as well as the physical factors of production including machinery and buildings.

Character

In finance, character often refers to one of the "Three Cs" (character, capacity, collateral) used to assess a borrower's creditworthiness, focusing on their reputation for repaying debts.

Financial Reserves

Funds or assets that are set aside to meet future liabilities, contingencies, or unforeseen expenditures.

Capital

Resources made available for the use in the production of goods or services, often categorized into financial, human, or physical forms.