not multiple choices, but ture or false questions (actually increase or decrease questions) aggregate deman will (A) increase or decrease if government increase borrowing ___________ (B) increase or decrease if government cut taxes ___________ © increase or decrease if government increase borrowing to finance the tax cut _______
A/ increase in gov’s borrowing --> interest rate up --> AD down as more reward to delay consumption and less investment but I’m wondering if the gov spending multiplier effect couldn’t increase AD too … but then we got a crowding out ?? don’t we ?? I’d go for true B/ gov cut tax: Supply of labor up --> AD and AS both up I’d say false C/ [man !! where did u get that Q from !] gov multiplier effect being stronger then AD should increase
With B, doesnt a tax cut increase consumption, therefore increasing AD?
lloyd yes I think these econ Q can be viewed from different angles … (more chances to pick the wrong answer) any other ideas ?
When i look at the problem, im not sure what gov’t borrowing is. Does this mean a decrease in gov’t spending? who are the borrowing from?