Explain why the tax multiplier is different from the government purchases multiplier, in both sign and relative magnitude
What will be an ideal response?
A dollar change in government purchases has the opposite impact of a dollar change in taxes. For example, an increase in government purchases increases income, spending, and GDP in the economy. In contrast, an increase in taxes lowers income, spending, and GDP in the economy. As a result, the government purchases multiplier is positive, and the tax multiplier is negative.
A dollar change in government purchases will have a larger affect on GDP as compared to a dollar change in the tax multiplier. A change in government purchases affects overall spending directly. The first round GDP change in the multiplier process will be equal to this change in spending. In contrast, a change in taxes affects income first and then spending. For example, a tax cut will increase income, but not all of that income will be spent; some of it is saved. The fraction of income that is spent is the MPC times the income change. The first round GDP change in the multiplier process will be equal to this smaller change in spending. Hence, a decrease in taxes will have a smaller impact on equilibrium than would an increase in government purchases.
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A vehicle currency is:
a. contraband-it is used to smuggle other assets into controlled economies. b. a widely accepted, tradable currency that serves as a currency to use for buying or selling one's own. c. a currency whose value changes rapidly and erratically. d. a currency used to purchase imports of autos, buses, and other transportation equipment.
Maximizing revenue maximizes profits.
Answer the following statement true (T) or false (F)
Along a perfectly elastic demand curve,
A. the slope is always zero. B. the price elasticity of demand is 1. C. consumer purchases will not respond at all to a change in price. D. All of the responses are correct..
Each of the following was considered a proponent of supply-side economics EXCEPT
A. Arthur Laffer. B. Ronald Reagan. C. Congressman Jack Kemp. D. Milton Friedman.