Anne and Charlie Are Discussing the Best Fiscal Policy to Bring

question 116

Multiple Choice

Anne and Charlie are discussing the best fiscal policy to bring the country out of a recession.Charlie wants to see government cut taxes by $100 billion.Anne prefers to see government spending increase by $100 billion.Whose prescription would have the larger total impact on aggregate demand?

• A) Anne's,because the government has more information available to it than do households and firms
• B) Anne's,because all of the additional government spending will enter the spending stream,while part of a tax cut would be saved (and not spent)
• C) Charlie's,because households and firms have a higher marginal propensity to consume than the government
• D) Charlie's,because firms and households are better spenders than the government,whose spending decisions are bogged down in political debating

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Definitions:

Classical Conditioning

A pattern of learning where two stimuli are habitually paired; consequently, a response initially generated by the second stimulus becomes generated by the first stimulus.

Social Learning Theory

A theory proposing that people can learn new behaviors and information by watching other people (also known as observational learning).

Operant Conditioning

A method of learning that employs rewards and punishments for behavior, emphasizing the idea that behaviors are influenced by their consequences.

Food Aversion

A strong dislike or unwillingness to eat certain foods, often developed after a negative experience with the food.