Question

1) when income tax rates fall, households will ___ consumption spending and ____ private saving. a....

1) when income tax rates fall, households will ___ consumption spending and ____ private saving.

a. decrease; increase b. decrease; decrease c. increase; decrease d. increase; increase

2) during each recession, potential gdp falls.

true or false

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Answer #1

Q1

Option c

d. increase; increase

Disposable income =gross income -taxes

the decrease in taxes increases disposable income

disposable income =consumption + saving

The increase in disposable income increases consumption spending and private saving.

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Q2

False

A potential GDP is a GDP produced using all the available resources in the economy which is called full employment GDP, and it changes if there is a change in capital, labor or technology.

During a recession, the actual real GDP is below potential GDP.

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