Figure 34-6

question 171

Multiple Choice

Figure 34-6. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs.

-Refer to Figure 34-6. Suppose the graphs are drawn to show the effects of an increase in government purchases. If it were not for the increase in r from r1 to r2, then

• A) there would be no crowding out.
• B) the full multiplier effect of the increase in government purchases would be realized.
• C) the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases.
• D) All of the above are correct.

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Definitions:

Tax Law

The body of laws and regulations governing the administration and enforcement of tax duties on individuals, corporations, and other entities.

Charitable Contributions

Donations made to qualified organizations, which can often be deducted from taxable income.

Taxable Income

The portion of one's income that is subject to taxes by federal, state, and/or local governments, calculated after deductions and exemptions.

Carryforward

A tax provision allowing current losses or credits to be used in future tax years to offset potential gains or income.