Choose the statement that is incorrect O A. If the only consequence of increased
ID: 1114191 • Letter: C
Question
Choose the statement that is incorrect O A. If the only consequence of increased government expenditure is crowding-out of investment, the government expendiftuare multiplier is less than 1 O B. lf the only consequence o increased government e pend ure is an increase in consumption expend ure the government expenditure mult lier is eater than 1 C. An increase in government expenditure Increases government borrowing (or decreases govemment lending if there is a budget surplus) and lowers the real interest rate 0 D. The government expenditure multiplier is te quantitative effect of a change in government expenditure on real GDP 2
Explanation / Answer
About the international debt of the US
Alternative c is incorrect as in order to pay the international debt, the US must increase its national income by raising the consumption. Hence, raising saving and lowering of consumption is not correct.
The other alternatives are correct.
From the given diagram, the tax wedge is $5 per hour which has decreased the labor supply from 250 to 200 billion hours. Hence, alternative D is correct.