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Question of the Week - Economics

AdaptPrepAdaptPrep Des Moines, IA, USAPosts: 211 Sr Associate
edited May 2015 in Level 1 Questions
If government spending increases, and total expenditures, investments, and the trade balance remains constant, consumption most likely will:

Question of the Week - Economics 42 votes

Decrease
47%
AndrewKokAdaptPrepRandallK27ThomasWCFAI_wont_stop_me71hamiltonYannickToneandoneKidBrokerneelabh9891RisingAlphaPicknrollnilsenp06irinagpvarsenal93Richie321TheClawferociousPahtsanSwati 20 votes
Increase
47%
dodoLeChiffreralu14RoyDdesantolrsparksnmaczEQ_ArbitrageImGoingAllTheWaybvanove12Kevinshytowncubs7SarahKnockleSaikiranzacstthomaspowellsamyakjaroliCh.Ministryecoffey123kevtiv 20 votes
Remain unchanged
4%
rdxsri12 2 votes

Comments

  • AdaptPrepAdaptPrep Des Moines, IA, USAPosts: 211 Sr Associate
    Decrease

    This question is an application of the total expenditures formula:

    Total Expenditure = Consumption + Investments + Government Spending + Net Exports

    Solving for consumption, we get:

    Consumption = Total Expenditure - Investments - Government Spending - Net Exports

    If all the other items remain equal and government spending increases, consumption will decrease.

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