With reference to government spending (G), which of the following statements is correct.Select one correct answerGroup of answer choicesMuch government spending is very volatile but less so than investments, on average.Business investments are stable over a very long time horizon, while Government spending is much more affected by future demand.The government can spend what it likes.Government spending is likely to fluctuate with the business cycle (increasing in a downturn and vice versa) reducing economic instability
Question
With reference to government spending (G), which of the following statements is correct.Select one correct answerGroup of answer choicesMuch government spending is very volatile but less so than investments, on average.Business investments are stable over a very long time horizon, while Government spending is much more affected by future demand.The government can spend what it likes.Government spending is likely to fluctuate with the business cycle (increasing in a downturn and vice versa) reducing economic instability
Solution
The correct statement is: "Government spending is likely to fluctuate with the business cycle (increasing in a downturn and vice versa) reducing economic instability."
This is because government spending is often used as a tool to manage economic stability. During a downturn, the government may increase spending to stimulate the economy and during an upturn, it may decrease spending to prevent overheating. This is known as countercyclical fiscal policy. The other statements are generally not accurate. Government spending is not necessarily more volatile than investments, and while the government has significant control over its spending, it does not mean it can spend without any constraints. Business investments are not always stable over a very long time horizon and can be affected by various factors including future demand.
Similar Questions
Which of the following statement is correct with respect to economic fluctuationsSelect the two correct answersGroup of answer choicesHousehold’s consumption fluctuates relatively more than business investmentsIn most Wester modern economies, business investment make up the largest portion of the annual GDPIn general, investment spending is likely to be more volatile than consumption spendingHouseholds are more likely to smooth their spending over their lifetime than businesses
Government spending (G) is often used to:Group of answer choiceschange interest rates, which in turn alter consumption and investment. increase aggregate demand in a recession.decrease aggregate demand in a recession.target inflation.
If the total of government spending plus government transfer payments is less than tax revenues, which of the following must be true?ResponsesThe national debt will increase.The national debt will increase.There is a recessionary gap.There is a recessionary gap.The government budget is in surplus.The government budget is in surplus.The velocity of money will increase.The velocity of money will increase.The money multiplier will increase.
Government expenditure is more effective in economies when _______
In which situation is a government most likely to allow for spending during a deficit?A.A period when local taxes are very highB.A period of very low economic growthC.A period of very high economic growthD.A period when state taxes are very high
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