President Bush lowered income taxes for individuals in 2001. Explain how lower income taxes affect the aggregate demand curve
What will be an ideal response?
Lowering the income tax increases the amount of disposable income available to households. Higher disposable income increases consumption at every price level. The result is a shift in the aggregate demand curve to the right.
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An economy with an expansionary gap will, in the absence of stabilization policy, eventually experience a(n) ________ in the inflation rate, leading to a(n) ________ in output.
A. decrease; increase B. increase; increase C. decrease; decrease D. increase; decrease
In competitive markets, the elasticity of labor supply is:
a. unrelated to time. b. inversely proportional to time elapsed since a wage change. c. unity. d. directly proportional to time elapsed since a wage change.
Economic efficiency requires that Pareto improvements still be possible
a. True b. False
One advantage about an emissions permit system is that
a. it creates a "license to pollute," sure to be popular with environmentalists. b. it reduces uncertainty about the quantity of pollution that will be emitted. c. it is a direct control system and avoids the inefficiencies of a market. d. permits can be handed out on the basis of need to protect firms from high costs.