The effect on the IS curve of a reduction in taxes will be less the
A) flatter is the LM curve.
B) steeper is the LM curve.
C) greater the extent of "crowding out."
D) greater is the marginal propensity to save.
D
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Consider the following hypothetical scenarios:
Scenario A: You are about to purchase a pair of 7 for All Mankind jeans for $175 and a t-shirt for $45. The sales attendant at the store tells you that the pair of jeans you wish to buy is on sale for $160 at another store, located about a 20-minute drive away. Scenario B: You are about to purchase a pair of 7 for All Mankind jeans for $175 and a t-shirt for $45. The sales attendant at the store tells you that the t-shirt you wish to buy is on sale for $30 at another store, located about a 20-minute drive away. Based on standard economic theory, under which scenario would you make the 20-minute trip to the other store? A) Scenario A because the pair of jeans is a very expensive item and $15 saving is quite substantial B) Scenario B because a $15 saving amounts to a substantial discount (about 33 percent) C) in either scenario if I think a $15 savings is worth the 20-minute trip D) in none of these scenarios if I think the $15 saving is not worth the 20-minute trip E) C and D are correct answers.
When a payment is indexed to inflation and the price index understates inflation,
a. the real payment decreases over time b. the real payment increases over time c. the nominal payment decreases over time d. in unemployment rate will increase e. the level of unemployment will increase