Question

QUESTION 54

1. When taxes decrease, consumption

   	a.	increases as shown by a shift of the aggregate demand curve to the right.
   	b.	decreases as shown by a movement to the left along a given aggregate-demand curve.
   	c.	decreases as shown by a shift of the aggregate demand curve to the left.
   	d.	increases as shown by a movement to the right along a given aggregate-demand curve.

1 points   

QUESTION 55

1. The initial impact of an increase in an investment tax credit is to shift

   	a.	aggregate supply left.
   	b.	aggregate demand right.
   	c.	aggregate supply right.
   	d.	aggregate demand left.

Answer 1

Question 54:

When taxes decrease, consumer's disposable income (Y-T) increases and as consumption is a function of disposable income, an increase in the disposable income will cause an increase in the level of consumption and as consumption is a component of aggregate demand, increase in consumption will cause an increase in aggregate demand and the aggregate demand curve will shift rightward. Hence the answer will be:

a. increases as shown by a shift of the aggregate demand curve to the right.

Question 55

As investment tax credit increases, the amount that firms can reinvest in their businesses increase and the level of investment will increase and as investment is a component of aggregate demand, level of aggregate demand will increase and the aggregate demand curve will shift rightward. Hence the answer will be:

b. aggregate demand right.