If the government raises taxes on labor income and interest income, explain how potential GDP and economic growth are affected
What will be an ideal response?
Tax increases on labor income decrease the supply of labor and so decrease equilibrium employment, which decreases potential GDP. Tax increases on the income from interest income capital decrease saving and so decrease the supply of capital, which decreases equilibrium investment and capital and so decreases economic growth.
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A country's balance of payment accounts include its government budget deficit or surplus
Indicate whether the statement is true or false
A subsidy:
A. reduces the amount that buyers pay and increases the amount that sellers receive for a good. B. increases the amount that buyers pay and reduces the amount that sellers receive for a good. C. reduces both the amount that buyers pay and the amount sellers receive for a good. D. increases both the amount that buyers pay and the amount sellers receive for a good.
There are different interest rates associated with many types of securities. Which of the following statements is correct?
A) they vary depending on the liquidity of the security B) they vary depending on the risk associated with the security C) except in very unusual times, most interest rates move together D) all of the above E) none of the above
Higher input prices result in
A) upward shifts of MC and reductions in output. B) upward shifts of MC and increases in output. C) downward shifts of MC and reductions in output. D) downward shifts of MC and increases in output. E) increased demand for the good the input is used for.