If the Government Purchases Multiplier Is 4 and a Change

question 61

Multiple Choice

If the government purchases multiplier is 4 and a change in government spending leads to a $500 million decrease in aggregate demand,we can conclude that

• A)Government spending decreased by $125 million.
• B)Taxes increased by $500 million.
• C)Taxes decreased by $100 million.
• D)Government spending decreased by $100 million.

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Definitions:

Investing Activity

Transactions involving the purchase and disposal of long-term assets and other investments, not including cash equivalents, part of a company’s cash flow statement.

Other Income

Revenue from non-primary business activities, such as rent, patents, or interest earnings, not related to the company's main business operations.

Gain on Sale

The profit realized when an asset is sold for a price higher than its book value.

Indirect Method

A cash flow statement methodology that adjusts net income for changes in non-cash transactions and working capital to calculate cash flow from operating activities.