Question

9.​If the MPC is 0.75, the tax multiplier equals:

​a.​-4

​b.​-3

​c.​0.33

​d. ​3

​e.​4

10.​Which of the following is the best example of an automatic stabilizer?

​a.​Welfare payments

​b.​Foreign aid​

​c.​Defense spending

​d.​Highway construction

11.​“He who pays a tax should receive the benefit from the expenditure financed by ​the tax.” This statement reflects which of the following principles for a tax?

​a.​Fairness of contribution

​b.​Ability-to-pay

​c.​Benefits-received

​d.​Inexperience-to-collect

​

12.​If Congress fails to pass a budget before the fiscal year starts, then federal ​agencies may continue to operate only if Congress has passed a:

​a.​Balanced budget amendment

​b.​Deficit reduction plan

​c.​Tax increase

​d.​Continuing resolution

Answer 1

9. Tax multiplier is given as MPC / 1- MPC.

Thus, if MPC = 0.75, Then

Tax Multiplier = 0.75 / 0.25 = 3

10. The example of automatic stabilizer is welfare payments. This is because these increase during a recession (puts more puchasing power in the hands of the individuals) and decrease during a boom . Accordingly, these work as automatic stabilisers.

The other options are incorrect because these constitute the spending of the government which cannot stabilise the economy during business cycles.

11. The correct answer is benefits received approach. This is because under this approach the tax is collected in accordance with the benefits received from the tax.

The other options are incorrect as option a and d are not the theretical approached to taxation. Ability to pay approach taxes the individuals on the basis of different abilities of people.

12. The correct answer is continuing resolution. This the resolution passed by the Congress in the given scenario. This resolution is used by the Congress to fund the federal government for a limited amount of time.