How can we explain the effect of a proportional tax on the multiplier?
What will be an ideal response?
Taxes that rise
with income will tend to lower the proportion consumed out of each dollar increase in income. For example, with a 15 percent tax each extra dollar of income will be reduced to 85 cents of disposable income. Applying our original mpc of 0.80 to the remaining 85 cents, we get 0.8 3 0.85 = 0.68, indicating that 68 cents will be devoted to consumption
(and 17 cents to saving). The result is similar to having a lower mpc, which also means a lower multiplier. This will dampen the effect of income changes on aggregate demand and economic equilibrium.
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Refer to the figure above. What is the producer surplus when the price is $70?
A) $800 B) $1,600 C) $2,000 D) $2,800
An estimate is
A) efficient if it has the smallest variance possible. B) a nonrandom number. C) unbiased if its expected value equals the population value. D) another word for estimator.
Asymmetric information increases the economic value that an agreement between two parties creates
Indicate whether the statement is true or false
Three years ago Dawn put $1,200 into an account paying 2 percent interest. How much is Dawn's account worth today?
a. $1,225.38 b. $1,248.48 c. $1,264.72 d. $1,273.45