Why is the personal income tax considered to be one of the main features of our modern economy that helps ensure against a repeat performance of the Great Depression?
What will be an ideal response?
Income tax is considered an automatic stabilizer because tax revenue change with the level of output. The income tax acts as a shock absorber because it makes disposable income, and thus consumer spending, less sensitive to fluctuations in GDP. When GDP rises, disposable income (DI) rises less because part of the increase in GDP is siphoned off by the U.S. Treasury. This leakage helps limit any increase in consumption spending. When GDP falls, DI falls less sharply because part of the loss is absorbed by the Treasury rather than by consumers. So consumption does not drop as much as it otherwise might. Thus, the personal income tax is one of the main features of our modern economy that helps ensure against a repeat performance of the Great Depression.
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With more job training and more scholarships to poor American students, which special factor of production is likely to grow faster than in the past?
What will be an ideal response?
As output increases, total fixed cost
a. increases. b. remains constant. c. rises and then falls. d. falls and then rises.
A decrease in the price of memberships to Gold's Gym fitness centers is likely to:
A. decrease the demand for workout clothing. B. increase the demand for workout clothing. C. decrease the demand for Gold's Gym memberships. D. increase the demand for Gold's Gym memberships.
The problem with public goods is that
a) too many people are excluded from their use and must find alternatives in the private sector b) the opportunity to act as a free rider is a disincentive to pay for public goods c) they compete with private goods, driving companies out of business d) they could be provided more efficiently by private companies e) they are distributed according to willingness to pay rather than ability to pay