If a Government Raises Its Expenditures by $50 Billion and at the Same

question 32

Multiple Choice

If a government raises its expenditures by $50 billion and at the same time levies a lump-sum tax of $50 billion, the net effect on the economy will be to:

• A) Increase GDP by less than $50 billion
• B) Increase GDP by more than $50 billion
• C) Increase GDP by $50 billion
• D) Make no change in GDP

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Definitions:

Rational Investor

A person who utilizes logical analysis for making investment choices, with the goal of maximizing gains and reducing risks.

Interest Rate

The cost of borrowing money or the rate paid on deposits, serving as the price of credit or savings in the financial market.

Interest Rate

The proportion of a total amount of money that is levied for borrowing it, usually stated on a yearly basis.

Investment

The allocation of resources, usually money, in assets with the expectation of earning a future return.