The effect of a decline in taxes on the level of income will differ somewhat from an increase in government expenditures of the same amount because
A. the MPC that applies to the incomes of households always exceeds the MPC that applies to business incomes.
B. tax declines tend to be more expansionary.
C. the multiplier is high when the MPS is low.
D. households may not spend all of an increase in disposable income.
Answer: D
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A nation has a comparative advantage in producing a good, if
A. more people in the country are employed in the production of the good than in other countries. B. it has either a greater productivity advantage or a smaller productivity disadvantage. C. it has a higher standard of living than its trading partners. D. it also has an absolute advantage in producing the good.
The "invisible hand" refers to the control that government must exercise over a market economy
a. True b. False Indicate whether the statement is true or false
Compared to the severe recession of 1981-1982, the growth of real GDP during the first two years of recovery from the 2008-2009 recession was
a. much more rapid and the unemployment rate fell by a smaller amount after the more recent recession. b. slower and the unemployment rate fell by a smaller amount after the more recent recession. c. more rapid but the unemployment rate fell by a smaller amount after the more recent recession. d. similar and the decline in the rate of unemployment was almost identical during the recovery from each of these recessions.
Which of the following correctly explains the crowding-out effect?
a. An increase in government expenditures decreases the interest rate and so increases investment spending. b. An increase in government expenditures increases the interest rate and so reduces investment spending. c. A decrease in government expenditures increases the interest rate and so increases investment spending. d. A decrease in government expenditures decreases the interest rate and so reduces investment spending.