In the Short-Run Macro Model,an Increase in Government Spending

question 108

Multiple Choice

In the short-run macro model,an increase in government spending

• A) may reduce real GDP
• B) partially crowds out private investment spending
• C) usually crowds out exports
• D) usually crowds out spending on services
• E) requires an increase in taxes.

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Definitions:

Payback Period

The duration of time it takes for an investment to generate cash flows sufficient to recover its initial cost.

Discount Rate

The discount rate that's critical in the process of valuing future cash flows today, within the framework of discounted cash flow analysis.

Net Present Value

A financial metric used to evaluate the profitability of an investment, calculated by subtracting the present value of cash outflows from the present value of cash inflows.

Capital Budgeting

The process of planning and evaluating expenditures on assets whose cash flows are expected to extend beyond one year, like new machinery, equipment, or projects.