Which of the Following Would Reduce GDP by the Greatest

question 145

Multiple Choice

Which of the following would reduce GDP by the greatest amount?

• A) A $20 billion increase in taxes.
• B) $20 billion increases in both government spending and taxes.
• C) $20 billion decreases in both government spending and taxes.
• D) A $20 billion decrease in government spending.

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Definitions:

Bankers' Acceptance

A short-term debt instrument issued by a company but guaranteed by a bank, often used in international trade.

Certificate of Deposit

A savings certificate with a fixed maturity date and specified fixed interest rate, issued by banks to individuals investing money for a fixed period of time.

Tax Bracket

Categories that tax rates apply to, which are based on levels of income; each bracket has a different tax rate associated with it.

Equivalent Taxable Yield

The yield on a tax-exempt security that would be required to produce the same after-tax yield as a taxable security, given an investor's tax rate.