Which of the following statements describes the most likely effect of cutting taxes?
a. Cutting taxes would effectively raise the hourly wage, so it would encourage people to work more.
b. Cutting taxes would effectively lower the hourly wage, so it would require people to work more to maintain their standard of living.
c. People work either 20 hours or 40 hours per week, regardless of hourly wage, so cutting taxes would have no effect.
d. Some people might work more hours, but others will not or will not be able to.
d. Some people might work more hours, but others will not or will not be able to.
The specific claim that tax cuts will lead people to work more hours is only likely to hold for specific groups of workers and will depend on how and for whom taxes are cut. Some people, especially part-timers, may react to higher wages by working more. Many will work the same number of hours. Some people, especially those whose incomes are already high, may react to the tax cut by working fewer
hours.
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How does a decrease in the price of one good affect a consumer's budget constraint? How is the effect different from a decrease in the consumer's income?
What will be an ideal response?
For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $1,000 and the quantity of loanable funds supplied is $1,000 . Currently, the nominal interest rate is 9 percent and the inflation rate is 2 percent. Currently,
a. the market for loanable funds is in equilibrium. b. the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will rise. c. the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall. d. the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise.
Payments for loans by households to firms are known in aggregate accounting as:
A. employee compensation. B. rents. C. profits. D. interest.
The United States began to pull out of a recession in the spring of 1991. Unemployment fell, but inflation did not increase. What was the most likely cause of this?
A. Aggregate demand was increasing at a faster rate than aggregate supply. B. Both aggregate demand and aggregate supply were decreasing. C. Aggregate supply was increasing at a faster rate than aggregate demand. D. Aggregate demand was increasing but aggregate supply was decreasing.