ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Incomes will rise, resulting in a tax decrease.
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Incomes will rise, resulting in higher consumption.
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The increased spending raises the aggregate price level.
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The increased spending increases the money supply, lowering interest rates.
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The higher budget deficit reduces investment.
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Detailed explanation-1: -Which of the following best explains why equilibrium income will rise by more than $100 in response to a $100 increase in government spending? Incomes will rise, resulting in higher consumption.
Detailed explanation-2: -Which of the following best explains the increase in national income that results from equal increases in government spending and taxes? Consumers do not reduce their spending by the full amount of the tax increase.
Detailed explanation-3: -Same increase in taxes & government spending increases equilibrium output by same amount.
Detailed explanation-4: -Which of the following is a reason a government might increase government spending? It is concerned that the unemployment rate is too high.
Detailed explanation-5: -Which of the following best explains how and why the economy will adjust back to long-run equilibrium? Short-run aggregate supply will increase (shift rightward) as the recession makes firms and workers willing to accept lower wages and prices.