How can a tax cut increase investment, and what is the impact on the economy?
What will be an ideal response?
The level of investment is affected by expectations of future profit. If a decrease in corporate taxes raises the potential for profits, then businesses are likely to spend (invest) more. This increased investment has a multiplied effect on total spending for the economy, and aggregate demand shifts to the right.
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When a person does not have to pay the full costs for using a scarce resource, then
A) the use of the resource is not affected since society pays for the resource. B) more of the resource will be used. C) the internal costs of using the resource are too high. D) the social costs of the resource are less than they would be if the "correct" amount of the resource were being used.
Which of the following does not reflect a positive rate of time preference?
a. People are willing to pay high prices to see new movies at first-run theaters. b. A bank pays interest on savings accounts. c. Ed puts money in his mattress for a rainy day. d. Dry cleaners that provide faster service can charge more. e. A college freshman parties all semester, then stays awake studying for 50 straight hours during final exam week.
A fixed exchange rate
a. is a declared rate that is maintained by central bank intervention in the foreign exchange market b. is a rate that is fixed by the forces of supply and demand c. is a rate that is determined by trilateral arbitrage d. "fixes" the value of a nation's price level e. is a mechanism for eliminating a trade deficit
Why does a tax change affect aggregate demand?
a. A tax change alters saving by an equal amount. b. A tax change alters imports and net exports. c. A tax change alters government spending by an equal amount. d. A tax change alters disposable income and consumption spending.