1) (justify) The less progressive the tax system, the: - a) Weaker is the built-in stability...

1) (justify) The less progressive the tax system, the: -

a) Weaker is the built-in stability for the economy

b) Greater is the built-in stability for the economy

c) Less is the effect of crowding-out on the economy

d) Greater is the severity of business fluctuations on the economy

2) (show working) If the price level is constant and the slope of the aggregate expenditure curve is 0.65, a decrease in investment of RM 100 leads to a decrease in real GDP of about -

a) RM65

b) RM154

c) RM100

d) RM286

3) [SHOW WORKING] If the price level is constant and the slope of the aggregate expenditure curve is 0.65, a decrease in investment of RM 100 leads to a decrease in real GDP of about -

a) RM65

b) RM154

c) RM100

d) RM286

Solutions

Expert Solution

1) correct option - (a)

Progressive taxation is an automatic stabilizer. Less progressive the taxation is weaker the built in stability will be of economy.

2) correct option - (d)

We use the formula of keynesian multiplier.

Slope of aggregate expenditure = MPC

Solutions are in below pic.

Rahul Sunny answered 2 years ago

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