Assume that the government proposes a negative income tax that calculates the taxes owed as follows: taxes owed equal 30% of income less $12,000 . A family that earns an income of $40,000 will
a. neither pay taxes nor receive an income subsidy.
b. receive an income subsidy of $3,600.
c. pay $3,600 in taxes.
d. pay $12,000 in taxes.
a
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As the marginal propensity to consume (MPC) decreases, the spending multiplier:
a. increases. b. decreases. c. remains constant. d. becomes indefinable.
If a tax is regressive, the average tax rate
A. remains the same as income rises. B. rises as income rises. C. falls as income rises. D. falls as income falls.
Starting from long-run equilibrium, a large tax cut will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; higher; higher B. recessionary; lower; lower C. expansionary; higher; potential D. recessionary; higher; potential
Output in the long run is determined by which of the two following factors when an economy operates at full employment?
A. capital and supply B. imports and exports C. capital and labor D. the "real" GDP and purchases