As Opposed to an Increase in Government Expenditures, a Tax

question 39

Multiple Choice

As opposed to an increase in government expenditures, a tax cut

• A) is likely to impact spending faster and according to traditional theory has a larger multiplier.
• B) is likely to impact spending faster, but according to traditional theory has a smaller multiplier.
• C) is likely to impact spending with a longer lag, but according to traditional theory has a larger multiplier.
• D) is likely to impact spending with a longer lag and according to traditional theory has a smaller multiplier

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Definitions:

Government Policy

The strategic plans and decisions made by government leaders and agencies that determine the direction of national, state, or local governance.

Currency Valuations

The process of determining the worth of one currency in terms of another currency.

Option

A financial derivative that gives the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price within a specific time period.

Forward Exchange Rate

A predetermined rate for exchanging one currency for another at a future date, used primarily to hedge against currency risk.