The Tax Multiplier Is Smaller in Absolute Value Than the Government

question 177

Multiple Choice

The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of the

• A)decrease in taxes will be saved by households and not spent, and some portion will be spent on imported goods.
• B)decrease in taxes will be saved by households and not spent, and some portion will be spent on consumer durable goods.
• C)increase in government purchases will be saved by households and not spent, and some portion will be spent on imported goods.
• D)increase in government purchases will be saved by households and not spent, and some portion will be spent on consumer durable goods.
• E)decrease in government spending will be recaptured by government as taxes.

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Definitions:

Aggregate Demand

The whole of economic demand for goods and services at a given price level, within a certain time range.

Federal Budget

A government's plan for revenue and spending over a specific period.

National Debt

The total amount of money that a country's government has borrowed by various means, including foreign governments and domestic lenders.

Treasury Bills

Short-term government securities with maturities of less than one year, sold to investors to finance governmental debt.