Which of the Following Explains Why the Government Should Not

question 115

Multiple Choice

Which of the following explains why the government should not increase spending by the entire amount of the AD shortfall to move the economy to full employment?

• A)Price level changes will make up for the difference between the fiscal stimulus and the AD shortfall.
• B)The multiplier process will contribute to an additional increase in aggregate demand that will cause an inflationary gap.
• C)The government can increase taxes to create an additional increase in aggregate demand.
• D)The price level is constant.

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Definitions:

Conversion Value

The financial value of converting a convertible security, like a convertible bond, into its underlying equity at the current market price.

Convertible Bond

A convertible bond is a type of bond that can be converted into a predetermined number of shares of the issuing company's stock during certain periods during its life.

Black-Scholes

A mathematical model used to estimate the theoretical price of options and other derivatives, incorporating factors like volatility and time to maturity.

Pricing Formula

A method or equation used to determine the selling price of a product or service, taking into account factors like cost, demand, and competition.