There Is an Increase in Government Expenditures Financed by Taxes

question 71

Multiple Choice

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending.Which of the following is correct?

• A)By themselves,both the change in output and the change in the interest rate increase desired investment.
• B)By themselves,both the change in output and the change in the interest rate decrease desired investment.
• C)By itself,the change in output increases desired investment spending and by itself the change in the interest rate decreases desired investment spending.
• D)By itself,the change in output decreases desired investment spending and by itself the change in the interest rate increases desired investment spending.

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Definitions:

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Profitability Index

A financial tool used to evaluate the attractiveness of an investment, calculated as the present value of future cash flows divided by the initial investment.

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A valuation method that calculates the worth of a future stream of cash flows by discounting them back to their present value.

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Internal Rate of Return; a financial metric used to estimate the profitability of potential investments, calculating an annual growth rate.