ECON 2301 - Chapter 32

Choose the statement that is correct. A. A tax on interest income raises the quantity of saving and investment. B. The true tax rate on interest income is higher than that on labor income because of the way in which inflation and taxes on interest income interact. C. The true tax rate on interest income is the same as the tax rate announced by the government. D. A tax on interest income increases the growth rate of real GDP.

B. The true tax rate on interest income is higher than that on labor income because of the way in which inflation and taxes on interest income interact.

The figure shows the labor market when an income tax is imposed. The tax wedge is​ ______.

$15 an hour

Choose the correct statement. A. The balanced budget multiplier is positive because an increase in government expenditure increases disposable income. B. When both government expenditure and taxes decrease by $1, aggregate demand decreases. C. The balanced budget multiplier is equal to zero. D. The balanced budget multiplier is the magnification effect on aggregate demand of a simultaneous increase in aggregate demand and an equal decrease in taxes.

B. When both government expenditure and taxes decrease by $1, aggregate demand decreases.

An increase in taxes when the economy is above full employment ​ ______ aggregate demand and real​ GDP, and the price level​ ______. The magnitude of the tax multiplier is equal to​ _______.

decreases; falls MPC times the government expenditure multiplier

Induced taxes​ ______ during a recession. ​Needs-tested spending​ ______ during a recession. Induced taxes and​ needs-tested spending​ _______ the multiplier effects of changes in autonomous expenditure.

decreases; increases decreases

An increase in the income tax rate is an example of​ ______.

discretionary fiscal policy

An economy is in a below​ full-employment equilibrium. The fiscal stimulus that returns the economy to full employment​ ______ aggregate demand and real​ GDP, and the price level​ ______. The fiscal stimulus that returns the economy to full employment from a below​ full-employment equilibrium​ _______.

increases; rises could be an increase in government expenditure and an equal increase in taxes

The graph shows the demand for labor curve and the supply of labor curve for an economy. Draw a point at the equilibrium real wage rate and equilibrium quantity of labor. Label it 1. Now the government imposes a tax on labor income. Draw a curve that shows the effect of this tax. Label it. Draw points at the new equilibrium quantity of labor to​ show: ​1) the​ before-tax wage rate. Label it 2. ​2) the​ after-tax wage rate. Label it 3. When the government imposes a tax on labor​ income, ______ the production function occurs and potential GDP​ ______.

A leftward movement along; decreases LS + tax at (278, 50) to (96, 15) ??? Point 1 at (250, 30). Point 2 at (200, 35). Point 3 at (200, 20).

The table shows the tax revenues and the outlays of a nation at each level of real GDP. What is the budget deficit when real GDP is​ $4 trillion? ​>>> When you are asked to report a​ deficit, it is reported as a positive number. If you are asked to report the budget​ balance, and that balance is a​ deficit, then it is reported as a negative number. When real GDP is​ $4 trillion, the budget deficit is ​$____ trillion ​>>> Answer to 1 decimal place. Real GDP Tax Revenues Outlays (trillions of dollars) ----------------------------------------------------------------- 3 0.1 0.5 4 0.2 0.4 5 0.3 0.3 6 0.4 0.2 7 0.5 0.1

When the real GDP is $4 trillion, the budget deficit is $0.2 trillion. real GDP =$4 trillion tax revenue =0.2 trillion outlay=0.4 trillion Budget deficit =outlay - tax revenue =0.4-0.2 =0.2 trillion the budget deficit is $0.2 trillion. Real GDP = $4 trillion Tax Revenue = 0.2 trillion Outlay = 0.4 trillion Budget Deficit = Outlay - Tax Revenue = 0.4 - 0.2 = 0.2 trillion