What is one way to avoid money illusion?
What will be an ideal response?
One way to avoid the problem of money illusion is to transform nominal dollar figures into real dollars (inflation-adjusted dollars). This allows more accurate comparisons between the dollar amounts over time.
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In the simple Keynesian model (no money market) assume that equilibrium output falls short of potential output by 300 units and the MPC = 0.8 . The size of the tax cut needed to reach full employment is
a. 30. b. 60. c. 75. d. 300.
Which of the following would indicate that a tax is regressive?
a. High-income people pay $5,000 . low-income people pay $2,000. b. High-income and low-income people pay $200 each. c. High-income people pay 20 percent of their income in taxes; low-income people pay 10 percent. d. Both high-income and low-income people pay 10 percent of their income in taxes. e. Low-income people are exempt from the tax.