In the real economy, income taxes are generally proportional or progressive
What will be an ideal response?
that is, they increase with income levels (as discussed in Chapter 3).* In our model, the effect of a
proportional tax would be to flatten the aggregate demand curve, since it has a larger effect at higher income levels. (See Appendix A2 for a more detailed treatment of the impact of a proportional tax—we omit analysis of progressive taxes, which is a bit more complex.) This in turn will affect the multiplier, reducing it somewhat.
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The prisoners' dilemma shows that the players' dominant strategies often lead them to less than optimal outcomes. Is there any way in which this will not be the case?
What will be an ideal response?
In the absence of financial frictions, ________
A) interest rates for different borrowers move closely together B) all loans in the economy are transacted at a common interest rate C) the level of output is not affected by changes in the real interest rate D) an increase in inflation leads to a decrease in the real interest rate
You watch a lot of HGTV during your summer vacation, and you notice that most housing buyers list granite countertops in their "must have" lists when buying a new or existing house. You expect the demand for
a. granite countertops to shift to the left. b. granite countertops to shift to the right. c. substitute products such as marble countertops to shift to the right. d. substitute products such as marble countertops to be unaffected by buyers' preferences for granite.
How does the demand curve for an oligopoly firm differ from the demand curves for firms in competitive market structures?
What will be an ideal response?