Question

an increase in government spending without an increase in taxes will a) reduce real Gross Domestic...

an increase in government spending without an increase in taxes will

a) reduce real Gross Domestic Product (GDP) while causing the price level to increase

b) increase real Gross Domestic Product (GDP) without affecting the price level

c) generate extra tax revenues to cover the extra spending

d) result in an increase in government borrowing

Homework Answers

Answer #1

Answer (D)

This is called indirect crowding out. There is no increase in taxes against the increased spending and so the expansionary fiscal policy expenditures will be through deficit spending which will increase the interest rate and in turn make the consumption and investment fall. The interest rate will fall as the government will try to fill the deficit by government borrowing from private sector or foreign institutions.  

Hope this explanation helps. Thank you!!

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
An expansionary fiscal policy is represented by: a-An increase in taxes b-A decrease in government spending...
An expansionary fiscal policy is represented by: a-An increase in taxes b-A decrease in government spending c-An increase in price level d-A decrease in real output
(c) Assume that current real gross domestic product falls short of full-employment output by $500 billion...
(c) Assume that current real gross domestic product falls short of full-employment output by $500 billion and the marginal propensity to consume is 0.8. (i) Calculate the minimum increase in government spending that could bring about full employment. (ii) Assume that instead of increasing government spending, the government decides to reduce personal income taxes. Will the reduction in personal income taxes required to achieve full employment be larger than or smaller than the government spending change you calculated in part...
Multiple questions: If Government spending decreases by $100, GDP will    a) increase by $500   b)...
Multiple questions: If Government spending decreases by $100, GDP will    a) increase by $500   b) fall by $500   c) fall by $400    d) increase by $900   e) fall by $900 If taxes increase by $100, GDP will    a) increase by $400   b) decrease by $400   c) rise by $500    d) fall by $600       e) not change Suppose that Congress reduced Government spending at the same time that the price of imported oil increased. This would...
How do changes in government spending and taxes affect the equilibrium price level and real GDP?
How do changes in government spending and taxes affect the equilibrium price level and real GDP?
QUESTION 14 Changes in government spending and/or taxes as the result of legislation is called open...
QUESTION 14 Changes in government spending and/or taxes as the result of legislation is called open market operations of the Federal Reserve fiscal policy balanced budget operations monetary policy QUESTION 15 Contractionary fiscal policy is deliberate government action to influence aggregate demand and the level of real GDP through expanding and contracting the money supply encouraging business to expand or contract investment regulating net exports. decreasing government spending or increasing taxes QUESTION 16 Expansionary fiscal policy consists of increasing government...
In the classical model, what is the effect of an increase in government spending that is...
In the classical model, what is the effect of an increase in government spending that is not financed by an increase in taxes (an increase in the deficit)? How do prices, real GDP, consumption, saving, investment spending, and real interest rates change as a result of the increase in government spending? Explain and show graphically. (Hint: Use the market for loanable funds model.)
(1) If the spending multiplier equals 10 and the actual equilibrium real GDP is $4 billion...
(1) If the spending multiplier equals 10 and the actual equilibrium real GDP is $4 billion below potential real GDP, then other things being equal, _____ to reach the potential real GDP level. Group of answer choices autonomous spending needs to increase by $40 billion real GDP needs to increase by $40 billion autonomous spending needs to increase by $4 billion real GDP needs to increase by $0.4 billion autonomous spending needs to increase by $0.4 billion (2) Other things...
1. A cut in government spending, a decrease in income abroad, an increase in taxes, or...
1. A cut in government spending, a decrease in income abroad, an increase in taxes, or an expectation that future consumer income will fall will all cause aggregate: A) demand to shift rightward. B)demand to shift leftward. C)supply to shift rightward. D)supply to shift leftward. E) supply and aggregate demand to both shift equally inward. 2. A decrease in aggregate supply can result in: A) Unemployment B) demand- pull inflation C) prosperity D) cost- push inflation E) a recession 3.A...
28- If autonomous spending rises, the expenditure equilibrium will rise by the increase in autonomous spending....
28- If autonomous spending rises, the expenditure equilibrium will rise by the increase in autonomous spending. the expenditure equilibrium will increase by the level of GDP times the expenditure multiplier. the expenditure equilibrium will fall by the increase in autonomous spending. the expenditure equilibrium will rise by the increase in autonomous spending multiplied by the expenditure multiplier. 31- An example of fiscal policy is an increase in autonomous spending by consumers. an increase in social security spending by the elderly....
23. Gross Domestic Product (GDP) is often stated as a measure of national expenditures. The accounting...
23. Gross Domestic Product (GDP) is often stated as a measure of national expenditures. The accounting formula is GDP = Consumption + Investment + Government Spending + Exports – Imports (often written GDP = C + I + G + X - M). Some people holding high public office interpret this to mean that imports (M) reduce real GDP and are therefore to be avoided or minimized. This position is either true or false (hint: C = Consumption includes imports):...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT