According to the New Classical Economists,increases in Government Spending Unaccompanied

question 47

Multiple Choice

According to the new classical economists,increases in government spending unaccompanied by tax increases will not necessarily increase aggregate demand because

• A)consumers will consume less and save more to prepare for increased taxes in the future.
• B)the private sector is more likely than the public sector to spend any extra income on national defense.
• C)consumers will increase their consumption proportionately more than Keynesian economists believe they will.
• D)consumers will save less than they otherwise would have.

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Definitions:

Gross Domestic Product

The Gross Domestic Product, or GDP, is the overall market or monetary worth of all completed goods and services generated inside the territorial limits of a country over a designated period.

Aggregate Expenditure

The total spending on goods and services in an economy at a given price level, including consumption, investment, government spending, and net exports.

Aggregate Expenditure

The total amount of spending in the economy that includes consumption, investment, government spending, and net exports.

Consumption

The use of goods and services by households, constituting one of the major components of gross domestic product (GDP).