Suppose an economy is in equilibrium. Also suppose that consumer expectations change as the threat of war increases the likelihood of an increase in taxes. This would result in:
a. an increase in equilibrium income.
b. no change in equilibrium income.
c. a downward shift of the aggregate supply curve.
d. a decrease in equilibrium income.
e. a change in the slope of the aggregate supply curve.
d
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Current equilibrium output equals $2,500,000, potential output equals $2,600,000, and the marginal propensity to consume equals 0.75. Under these conditions, a Keynesian economist is most likely to recommed
A) decreasing taxes by $25,000 B) decreasing taxes by $100,000 C) increasing government spending by $25,000 D) increasing government spending by $33,333 E) increasing government spending by $100,00
Explain why proponents of supply-side effects of tax rate variations who also believe that tax-rate changes influence aggregate demand might claim that cuts in marginal income tax rates can potentially push up real Gross Domestic Product (GDP) without generating inflation.
What will be an ideal response?