The Long-Run Effect of a Change in Government Spending Will

question 143

Essay

The long-run effect of a change in government spending will not cause real GDP to differ from its baseline value. However, in the long run, the values of the individual components of aggregate expenditure will differ from their baseline values. Why is this the case?

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Definitions:

Debt to Equity Ratio

A measure of a company's financial leverage calculated by dividing its total liabilities by shareholder equity, indicating the proportion of equity and debt used to finance a company's assets.

Dividends

Distributions given to the shareholders of a corporation, typically sourced from the profits of the business.

Pro Forma Net Income

An estimation of net income for a future period, assuming certain projections or events occur.

Profit Margin

Profit Margin is a financial metric that measures the percentage of revenue that exceeds the cost of goods sold, indicating how much profit a company retains from its sales.