Question

Of the three variables that determine consumption, which is the easiest for the government to directly...

  1. Of the three variables that determine consumption, which is the easiest for the government to directly influence?

    1. Autonomous consumption

    2. Marginal Propensity to Consume

    3. Disposable Income

  2. Suppose that the unemployment rate is currently 6.0%. According to the Classical Economists, what will happen for this problem to fix itself?

    1. Wages will rise

    2. Wages will fall

    3. Taxes will rise

    4. Taxes will fall

  3. Suppose that the unemployment rate is currently 6.0%. If the government increases tax rates (ceteris paribus), what will happen? Answer your question using Keynesian economics.

    1. CPI will fall

    2. CPI will rise

    3. CPI will stay the same

    4. CPI could increase or stay the same

    5. CPI could decrease or stay the same

  4. Suppose that the unemployment rate is currently 6.0%. If the government increases tax rates (ceteris paribus), what will happen? Answer your question using Keynesian economics.

    1. RGDP will fall

    2. RGDP will rise

    3. RGDP will stay the same

    4. RGDP could increase or stay the same

    5. RGDP could decrease or stay the same

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Homework Answers

Answer #1

Ans 1: (C)Disposable Income (because the government can directly affect it with the help of taxes and transfer payments)

Ans 2: (B) Wages will fall (because the unemployment is 6%, as per the classicals, the price and wages are flexible in nature. So, large part of labor in unemployed so, excess supply of labor, the wage rate falls)

Ans 3: (A) CPI will Fall (because due to taxes, aggregate demand for goods and services falls, this decreases the price level)

Ans 4 (A) Real GDP will fall because increase in taxes causes decrease in aggregate demand which would further decline the price level and real GDP level.

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