The Use of Government Purchases (G)as a Fiscal Policy Tool

question 44

Multiple Choice

The use of government purchases (G) as a fiscal policy tool can have an effect on long-run growth in the economy.Under what circumstances might an increase in G cause the level of potential output ( ) to increase?

• A)If the increase in G crowds out private investment.
• B)If the increase in G causes a permanent increase in the marginal propensity to consume,which causes a permanent rightward shift of the AD curve.
• C)If the increase in G is spent on public infrastructure that increases the productivity of private-sector production.
• D)If the increase in G leads to a permanent increase in the level of autonomous saving in the economy.
• E)If the increase in G is offset by an equal decrease in C,I,and NX.

---

Definitions:

Productivity Growth

Productivity growth is the increase in efficiency of production of goods and services, measured by the output per unit of input, over a specific time period.

Medicare, Medicaid

Federal programs in the United States that provide health coverage; Medicare is for people over 65 or with certain disabilities, and Medicaid is for low-income individuals and families.

Malpractice Insurance

A type of professional liability insurance that protects healthcare providers against claims of negligence or incompetence.

Economic Growth

A growth in an economy's ability to generate goods and services over different time periods.