An Aide to a U

question 109

Multiple Choice

An aide to a U.S.Congressman computes the effect on aggregate demand of a $20 billion tax cut.The actual increase in aggregate demand is less than the aide expected.Which of the following errors in the aide's computation would be consistent with an overestimation of the impact on aggregate demand?

• A)The actual MPC was larger than the MPC the aide used to compute the multiplier.
• B)The aide thought the tax cut would be permanent,but the actual tax cut was temporary.
• C)The increase in income shifted money demand less than the aide had anticipated.
• D)The increase in income resulted in investment rising more than the aide had anticipated.

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Definitions:

Specialized Knowledge

Expertise or skills focused on a particular area or discipline.

Secondary Labor Market

A segment of the labor market consisting of low-paying jobs with poor working conditions, minimal job security, and little potential for advancement, often contrasted with the primary labor market.

Free Market

Prices are determined only by supply and demand.

Workers' Interests

The needs, desires, and concerns of employees, often focusing on fair wages, safe working conditions, and job security.