Imagine That the Government Increases Its Spending by $75 Billion

question 78

Multiple Choice

Imagine that the government increases its spending by $75 billion.Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

• A)both the multiplier effect and the crowding-out effect
• B)the multiplier effect,but not the crowding-out effect
• C)the crowding-out effect,but not the multiplier effect
• D)neither the crowding out effect nor the multiplier effect

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Definitions:

Operating Income

Earnings derived from the principal operations of an enterprise, not including the effects of interest and tax deductions.

Variable Cost

A cost that fluctuates with changes in production volume, such as raw materials and direct labor costs.

Investment Turnover

A measure of a company's efficiency in using its assets to generate sales or revenue, calculated by dividing sales by the average total assets.

DuPont Formula

A method that breaks down the return on equity into three component parts—profit margin, asset turnover, and financial leverage—to analyze a company's financial performance.