According to the Model Developed in Chapter 3, When Government

question 140

Multiple Choice

According to the model developed in Chapter 3, when government spending increases and taxes increase by an equal amount:

• A) consumption and investment both increase.
• B) consumption and investment both decrease.
• C) consumption increases and investment decreases.
• D) consumption decreases and investment increases.

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Definitions:

Opportunity Costs

The cost of forgoing the next best alternative when making a decision.

Explicit Costs

Direct, out-of-pocket payments for goods or services used in the production of a product or service.

Production Costs

The total expenses incurred in the process of producing or manufacturing goods and services, including materials, labor, and overhead.

Opportunity Costs

Opportunity costs represent the benefits a person or business misses out on when choosing one alternative over another.