Why does the numerical value of the multiplier fall when an income tax is added to the income-expenditure model?
An income tax causes a portion of any increase in income to be taken away in taxes. This amount of taxes is therefore not available to be added back into the flow of spending and income. Each round of spending and income will be smaller because of this "leakage" effect of taxes. The total effect of a change in spending is thus reduced by the fact that each increase in income is reduced by the amount of taxes taken out before the next round of spending can occur.
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Which of the following explains why the demand for loanable funds is negatively related to the real interest rate?
A) A lower real interest rate makes more investment projects profitable. B) Consumers are willing to spend less and hence save more at higher real interest rates. C) Interest rate flexibility in financial markets assures an equilibrium in which saving equals investment. D) All of the above are reasons why the demand for loanable funds is negatively related to the real interest rate.
As people have become more health-conscious and decided to eat food that is better for them
A) the demand curve for scooters has shifted to the right. B) the demand curve for cupcakes has shifted to the right. C) the demand curve for oranges and apples has shifted to the right. D) None of the above.
Which of the following has been found to be most effective in improving the quality of education?
A. Training women in the community to offer supplemental lessons B. Distributing textbooks C. Providing parents with information about the quality of the children's schools D. Forcing students to study longer at home
All of the following, except one, are characteristics of monopolistic competition. Which is the exception?
a. There is a large number of sellers. b. Each seller faces a horizontal demand curve for its product. c. There are no significant barriers to entry or exit. d. Sellers produce differentiated products. e. There is a large number of buyers.