If the Government Increases Spending While Holding Taxes Constant, We

question 83

Multiple Choice

If the government increases spending while holding taxes constant, we expect

• A) an increase in investment spending by businesses too, as they anticipate future economic growth.
• B) a decrease in real saving as consumers follow suit and also increase borrowing.
• C) planned real investment spending by businesses to increase.
• D) interest rates to rise.

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Definitions:

Excess Capacity

A situation where a company produces less than the maximum amount it can produce due to lower demand.

Equilibrium

A state where supply equals demand in a market, resulting in an optimal distribution of goods and services.

Minimize Average Cost

The process of reducing the total cost per unit of goods or services produced.

Barriers To Entry

Obstacles that make it difficult for new firms to enter a market, which may include high start-up costs, regulatory hurdles, or strong competition.