Which of the following statements best explains the effects of transfer payments and taxes on aggregate spending?
a. Transfer payments and taxes affect aggregate spending directly, just as consumption does
b. Transfer payments and taxes affect aggregate spending indirectly by first changing disposable income and thereby changing consumption.
c. Changes in the amount of transfer payments and taxes cancel each other and therefore have no influence on any economic variable.
d. Transfer payments and taxes affect disposable income but have no effect on consumption.
e. Transfer payments affect disposable income, but taxes do not.
b
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The interest rate the Federal Reserve charges banks which borrow reserves at the Federal Reserve's discount window is called the:
A) federal funds rate. B) discount rate. C) prime interest rate. D) mortgage interest rate.
If the marginal propensity to consume is 0.75 and the desired amount of increase in real GDP is $240 billion, then by how much would government spending have to increase?
a. $240 billion b. $80 billion c. $60 billion d. $30 billion