Suppose There Are Two Policy Options Facing a Vote in the Senate

question 236

Multiple Choice

Suppose there are two policy options facing a vote in the Senate. In the first, government spending will increase $50 billion, while the second option is to cut taxes by $50 billion. A Keynesian economist would argue for

• A)the tax option because it also affects the incentives workers face. Long-run aggregate supply will increase with the tax cut, but not with the spending increase.
• B)the tax option because it is easier to pass. The effects on total spending would be identical.
• C)the spending option because it won't affect the deficit the way the tax cut would.
• D)the spending option because it has a bigger impact on total spending. The spending directly raises total spending plus it works through the multiplier, while the tax cut only works through the multiplier.

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Definitions:

Periodic Inventory System

An accounting system that records inventory purchases during the accounting period but waits until the end of the period to adjust the inventory balances and record cost of goods sold.

Gross Method

An accounting practice for recording the full invoice amount of a sale without deducting any discounts offered.

Merchandise Return

The process by which a customer returns previously purchased merchandise back to the seller, often due to defects or dissatisfaction.

Perpetual Inventory System

A technique in inventory accounting that uses computerized point-of-sale systems and enterprise asset management software for the immediate recording of inventory transactions.