“The more progressive a tax system, the greater is the economy’s built-in stability.” Explain this statement for both recessionary and peak phases of the business cycle.
What will be an ideal response?
A progressive tax would take a progressively greater proportion of rising incomes during the peak phase of the business cycle which means it would dampen spending increases and aggregate demand which, in turn, reduces inflationary pressures. On the other hand, a progressive tax would take proportionately less away from declining incomes during a recessionary phase allowing disposable income to fall less rapidly than real GDP. Therefore, aggregate demand would decline less rapidly than GDP and the magnitude of the spending decline that might occur in the absence of the tax would be reduced.
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The standard view in economics is that tax cuts without ________ will ________ the budget deficit resulting in ________
A) increasing spending; decrease; unemployment B) spending cuts; decrease; unemployment C) increasing spending; increase; crowding out investment D) spending cuts; decrease; crowding out investment E) spending cuts; increase; crowding out investment
Which of the following is not a result of imposing a rent ceiling?
A) There is a reduction in the quantity of apartments supplied. B) The marginal benefit of the last apartment rented is greater than the marginal cost of supplying it. C) There is an increase in the quantity of apartments demanded. D) Some consumer surplus is converted to producer surplus.
Which of the following never assumes, either implicitly or explicitly, independence between nominal and real variables?
A) the AS curve B) the Phillips curve C) Okun's law D) the classical dichotomy E) none of the above
A backward-bending supply curve of labor implies that
a. if the wage rate offered keeps increasing, at some point, workers will work fewer hours in response to an increase in the wage rate b. the firm can hire any quantity of workers it wishes provided it pays back workers for the lower wage rate it offered c. at higher wage rates, workers will go back to work (overtime) during their off hours d. income and work hours are regarded as back-to-back payments for labor e. wage rates are not an important consideration in the work decision