Starting from long-run equilibrium, a large increase in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; higher; potential
B. recessionary; higher; potential
C. recessionary; lower; lower
D. expansionary; higher; higher
Answer: A
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The simplified expenditure multiplier:
A. is calculated as 1/(1 ? MP). B. has a positive value. C. grows larger as the marginal propensity to consume increases. D. All of these are true.
How do income redistribution programs affect equality and efficiency?
What will be an ideal response?
Which of the following best explains why a $10 billion increase in transfer payments has a smaller impact on aggregate demand than a $10 billion increase in government purchases?
A) An increase in government purchases can be paid for with a bond issue while transfer payments must be funded by taxes. B) An increase in transfer payments can be paid for by borrowing, but an increase in government purchases must ultimately be funded by tax increases. C) Households save part of an increase in income while the entire increase in government purchases represents additional spending. D) An increase in transfer payments does not create a multiplier effect, but an increase in government purchases does.
A public good is:
a) Only consumed by the purchaser. b) Any good produced by a unit of government. c) The source of the free-rider dilemma. d) Priced in the market like private goods.