How does an increase in government transfer payments affect aggregate demand?
a. It has the same effect as a tax increase, which lowers AD with a larger multiplier than a spending decrease.
b. It has the same effect as a tax cut, which increases AD but with a smaller multiplier than a change in spending.
c. It has the same effect as a spending increase, which increases AD with a larger multiplier than a tax cut.
d. It has the same effect as a spending decrease, which increases AD with a larger multiplier than a spending decrease.
b
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A level of GDP cannot be at equilibrium when aggregate demand exceeds output because firms will notice that
A. inventory stocks are building up. B. inventory stocks are being depleted. C. their profits are negative. D. many of their workers have little to do.
An airline is considering adding a flight from Chicago to Sioux Falls. Revenue from the flight is expected to be $3,000. The total cost of the flight is $5,500, and the variable cost is $2,000. Should the airline add this flight?
A. No, the revenue ($3,000) is below the cost ($5,500). B. No, the addition to profit is very small and not worth the effort. C. Yes, profit increases by $1,000 ($3,000 ? $2,000). D. Yes, profit increases by $3,000.
When demand is relatively inelastic, a 5% increase in price will:
a. increase total revenue by more than 5%. b. increase total revenue by less than 5%. c. decrease total revenue by more than 5%. d. decrease total revenue by more than 5%.
Opportunity costs exist because
a. there is a price attached to virtually every good or service b. technology is not fixed in the economy c. people have different tastes and preferences d. limited resources cannot satisfy all of the wants in society e. the production possibilities frontier is bowed in with respect to the origin