The Argument That an Increase in Aggregate Demand, as a Result

question 14

Multiple Choice

The argument that an increase in aggregate demand, as a result of an increase in government purchases, will be offset by increases in savings (less current consumer spending) for future taxes is called:

• A)​the crowding out effect
• B)​the Ricardian equivalence theorem
• C)​the budget deficit effect
• D)​the budget surplus effect

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Definitions:

Common Stock

A form of corporate equity ownership, a type of security that signifies an ownership interest in a corporation and a claim on a portion of its profits.

Installation Costs

Expenses associated with setting up or installing equipment, machinery, or infrastructure necessary for the operations or activities of a business.

Depreciation Process

The systematic reduction in the recorded cost of a fixed asset over its useful life, reflecting its decrease in value over time.

Matching Principle

An accounting principle that dictates expenses should be recognized in the same period as the revenues they help to generate.