The mechanism by which tax and transfer changes affect output differs from the process discussed above for government spending.
What will be an ideal response?
While government purchases directly affect aggregate demand and GDP, the effect of taxes and transfer payments is indirect, based on their effect on consumption or investment. There are many kinds of taxes and transfers, including corporate taxes, tariffs, and inheritance taxes, but we focus here on the effects of changes in personal income taxes and transfers to individuals
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As a result of the rightward shift in the demand curve for labor from LD0 to LD1, the equilibrium level of employment ________ and potential GDP ________
A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases
Both ________ and ________ are Federal Reserve assets
A) currency in circulation; reserves B) currency in circulation; securities C) securities; loans to financial institutions D) securities; reserves
The larger the proportion of income spent on a product, other things equal, the: a. more unit elastic is a consumer's demand
b. more elastic is a consumer's demand. c. more inelastic is a consumer's demand. d. more vertical is a consumer's demand curve.
Which of the following has made the greatest contribution to advances in productivity in recent years?
A. Spending on research and development. B. Improvement in management. C. Improvements in the quality of labor. D. Increases in capital per worker.