Question

As a result of the partial expiration of Bush-era tax cuts in January 2013, the marginal income tax rates for some households increased and these households paid higher taxes. Which of the following would be the best description of the tax cut expiration?

1 A leftward shift in AS

2 A rightward shift in AS

3 A leftward shift in AD

4 A rightward shift in AD

Which of the following scenarios would cause cost-push inflation?

1 An increase in government military spending

2 An increase in imports

3 An increase in costly government regulations in the steel industry

4 An increase in consumer spending on housing

Which of the following scenarios shifts the US aggregate demand to the left?

1. A decrease in US exports

2 A decrease in US personal income tax rates

3 A decrease in US real GDP

4 An increase in the US aggregate price level

Answer 1

Ans. Option c

As the income tax has increased for some households, so, their disposable income will decrease leading to a lower consumption spending. So, aggregate demand will decrease leading to leftward shift of AD curve.

Ans. Option c

Cost push inflation is the one where the increase in cost of production increases price level. So, costly government regulations on the steel industry will increase cost of production of steel leading to cost push inflation.

Ans. Option a

Decrease in US exports will decrease aggregate demand for goods and services in USA leading to a leftward shift of aggregate demand curve.