Ignoring any supply-side effects, how does the magnitude of the government expenditure multiplier compare to the magnitude of the tax multiplier? Explain your answer
What will be an ideal response?
The magnitude of the government expenditure multiplier is larger than the magnitude of the tax multiplier. The government expenditure multiplier is larger because a $1 change in government expenditures has an initial effect on aggregate demand of $1. In other words, a $1 increase in government expenditures initially increases aggregate demand by the entire $1. However, a $1 change in taxes does not initially affect aggregate demand by the entire $1. Instead, it affects aggregate demand by less than $1. For instance, a $1 decrease in taxes increases aggregate demand by less than $1. Why? Because part of the $1 decrease in taxes is saved and the amount saved does not increase aggregate demand.
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Of the following, the federal government obtains most revenue from
A) sales taxes. B) Social Security taxes. C) property taxes. D) excise taxes. E) corporate income taxes.
Economic depreciation is the
A) firm's opportunity cost of using its own capital. B) change in the market value of capital over a given period. C) return that an entrepreneur can expect to receive on average. D) forgone return on the funds used to buy capital.
The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price.
Answer the following statement true (T) or false (F)
In the cost-push model of inflation, increases in nominal-wage rates that exceed increases in the productivity of labor:
A. Increase aggregate supply and the price level in the economy B. Increase aggregate supply and decrease the price level in the economy C. Decrease aggregate supply and the price level in the economy D. Decrease aggregate supply and increase the price level in the economy