Tax changes have no impact on the consumption schedule. b. Tax reduction shifts the consumption schedule upward. c. Changes in taxes have a multiplier effect on equilibrium GDP on the supply side. d. Tax increases increase equilibrium GDP.
An increase in income tax rates will make the aggregate expenditures curve flatter and reduce the multiplier. A higher income tax rate thus rotates the aggregate expenditures curve downward. Similarly, a lower income tax rate rotates the aggregate expenditures curve upward, making it steeper.
An increase in the income tax rate rotates the aggregate expenditures curve downward by an amount equal to the initial change in consumption at the original equilibrium value of real GDP found in the aggregate expenditures model, $7,000 billion in this case, assuming no other change in aggregate expenditures.
d. spending increases when fiscal expansion is necessary, and tax increases when fiscal stimulus is necessary. a. tax increases when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. b. tax cuts when fiscal restraint is necessary, and spending cuts when fiscal stimulus is necessary.
"Fiscal Policy" is the federal government's plan for#N#a. international trade, designed to balance exports and imports.#N#b . spending and taxes, designed to influence the level of aggregate demand.#N#c. manipulating the money supply and the control of interest rates.#N#d. All of the above are correct.
a. fixed taxes can never be changed, but variable taxes can be changed. b. a change in fixed taxes has no effect on aggregate demand, but a change in variable taxes has an impact. c. a variable tax changes when GDP changes, but a fixed tax does not change with GDP.