Author Question: An aggregate production function: A) shows various combinations of labor and capital that can be ... (Read 51 times)

geodog55 · **on:** Jun 30, 2018

An aggregate production function:

A) shows various combinations of labor and capital that can be used to produce a particular good.
B) shows various quantities of two goods that can be produced at a given cost.
C) shows the relationship between a country's GDP and its factors of production.
D) shows the relationship between a country's output and its price level.

Question 2

What would happen to an economy if the government funded an increase in spending with an equivalent increase in taxes?

What will be an ideal response?

ntsoane kedibone · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

C

Answer to Question 2

Because the government spending multiplier is larger than the tax multiplier, if government spending and taxes increase by equal amounts at the same time, GDP will increase. The multiplier for equal changes in government spending and taxes is called the balanced-budget multiplier, because these equal changes will not unbalance the budget. The balanced budget multiplier is always equal to one, so if government spending and taxes are both increased by the same amount, the GDP will increase by the amount of the increase in government spending.