Suppose Each of the Following News Items Appears on the Evening

question 163

Multiple Choice

Suppose each of the following news items appears on the evening news.Which one would most likely cause consumption spending to increase?

• A) "Layoffs reach record high"
• B) "Government to increase taxes with the start of the next quarter"
• C) "Stock market drops 10%"
• D) "Government to issue tax rebates at the end of next month"
• E) "Bankruptcies increase 20% over the last six months".

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Definitions:

Consumer Spending

The total expenditures by households on goods and services, excluding new housing, which drives a significant portion of economic activity.

Income

The amount of money received on a regular basis through work or investments.

Multiplier Effect

The relative change in net income resulting from an addition or reduction in expenditure.

Crowding out

A situation in economics where increased government spending displaces private sector spending, either through higher taxes, higher interest rates, or borrowing.