What Is the Effect of a Decrease in Both Government

question 132

Multiple Choice

What is the effect of a decrease in both government spending and taxes by the same amount?

• A)GDP will fall but unemployment will rise.
• B)GDP will rise and unemployment will fall.
• C)Both GDP and unemployment will fall.
• D)Both GDP and unemployment will rise.
• E)There will be no effect on GDP or unemployment.

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Definitions:

Payroll Tax Expense

Levies placed on both employers and employees, determined based on a percentage of the wages that employers distribute to their workforce.

FICA Taxes Payable

Taxes owed for Federal Insurance Contributions Act, primarily for Social Security and Medicare, withheld from employees' paychecks.

Employer's Payroll Taxes

These are taxes that employers are required to pay on behalf of their employees, including Social Security and Medicare taxes in the United States.

Pension Rights

The entitlements employees earn towards future pension benefits as a result of their employment.