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Question:

If Social Security payments were increased without any change in taxes or in other federal spending, which one of the following would be expected as a result?

A Production would increase, and the economy would grow.
Explaination

Increasing Social Security payments would give more money to seniors and other Social Security recipients. This would increase consumer spending, which would have the effect of encouraging businesses to hire more people to produce more goods and services to meet the increased demand. This would increase production, and the economy would grow. Thus, answers (Unemployment would increase) and (Consumer spending would drop) are incorrect. The increased consumer spending would increase the demand for goods and services and push prices upward rather than downward (Prices would move downward). But note that this increase would be offset in part by the increased taxes the government would get from the growth in business profits and from the income taxes generated by higher employment levels.