How do taxes and needs-tested spending programs work as automatic fiscal policy to dampen the business cycle?
What will be an ideal response?
Taxes, such as income taxes, and needs-tested spending programs both work as automatic fiscal policy because they decrease the effect a change in income has on aggregate expenditure. For instance, when income decreases, consumption expenditure and aggregate expenditure decrease. But with the fall in income, income taxes decrease and needs-tested spending increase so that disposable income does not fall as much as does income. The smaller fall in disposable income means that the fall in consumption expenditure is smaller, so that the fall in aggregate expenditure is likewise smaller.
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If the Central Bank of Macroland puts an additional 1,000 dollars of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of 0.20, then the banks will eventually make new loans totaling ________ and the money supply will increase by ________.
A. $1,000; $5,000 B. $1,000; $1,000 C. $4,000; $4,000 D. $4,000; $5,000
The government sector balance is equal to ________
A) net taxes minus government purchases of goods and services B) tariffs minus imports C) saving minus investment D) exports minus imports
Compare the scale of agricultural production in the advanced and devel-oping economies. In which is the percentage higher? In which is the total amount produced greater?
What will be an ideal response?
Government regulations to reduce the possibility of financial panic include all of the following EXCEPT
A) transactions costs. B) restrictions on assets and activities. C) disclosure. D) deposit insurance.