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.
Ans: C) Households save part of an increase in income while the entire increase in government purchases represents additional spending.
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The federal budget deficit acts as an automatic stabilizer because
A) Medicaid payments increase during expansionary periods. B) unemployment insurance payments decrease during a recession. C) food stamp payments increase during expansionary periods. D) government tax revenues decrease during a recession.
Monetary policy will be effective in changing the gross domestic product of a nation only if: a. planned investment expenditures are autonomous
b. planned investment expenditures are sensitive to interest rates. c. interest rates are unresponsive to changes in money supply. d. interest rates are sensitive to changes in the price level. e. planned investment expenditures are sensitive to interest rates.
One of the reasons fiscal and monetary policy can stimulate output and employment in the short run is that nominal wages increase faster than the price level
a. True b. False Indicate whether the statement is true or false
Which of the following would lead to a depreciating dollar?
a. a higher federal deficit b. lower interest rates c. higher interest rates d. contractionary monetary policy