THE CORRECT ANSWER IS (C). THE OBJECTIVE OF DEFICIT SPENDING ISTO C...

5. The correct answer is (C). The objective of deficit spending is

to create jobs. With greater employment, workers will have more

money to spend. This stimulates demand, thus increasing

production that creates even more jobs. It was the theory behind

Roosevelt’s economic policy of “priming the pump.” Many

Democratic presidents since Roosevelt have followed it. Choice

(B) is the definition of supply-side economics, the theory behind

Ronald Reagan’s economic policy; it states that by giving people

more money, they will increase their savings and their purchas-

ing power, thereby generating more economic activity. Stagfla-

tion, choice (D), is a condition of the economy in which inflation

combines with low economic activity; it was the prevailing

economic condition of the 1970s. Choice (E) is the definition of

cost-of-living adjustment, which is also found in some govern-

ment programs, such as Social Security. Choice (A) is a definition

of the policy known as protectionism.

Practice Set 3