Question

According to life-cycle models of consumption, a $1000 tax cut would have the largest impact on consumption spending when

a. The tax cut is permanent b. The tax cut is temporary, and tax rates will steadily rise in subsequent years c. The tax cut is temporary, and tax rates will suddenly jump in subsequent years d. None of the above – A $1000 tax cut has the same impact on consumption spending regardless of whether it is temporary or permanent

7. An appreciation of the US dollar tends to a. Discourage Americans from traveling abroad b. Encourage exports of US goods c. Encourage foreigners to travel to the US d. Encourage imports into the US

8. If employers set efficiency wages that are above market wages, then a. Involuntary unemployment would disappear b. Real wage rigidity ceases to be an issue c. There could be permanent involuntary unemployment d. There could be permanent shortages of workers

9. The accelerator property of investment spending implies that a. Fluctuations in investment spending are more volatile than GDP fluctuations b. Fluctuations in investment spending are more stable than GDP fluctuations c. The IS curve is steeper than the LM curve d. The LM curve is steeper than the IS curve

Answer 1

As we know that, a tax is a compulsory payment made by a person to the government. Sound Tax system generates larger revenue to the government. We know that permenant tax cuts affect expectations of long run income. Consumer will boost the spending, when changes in taxes cuts are permenant.

7).The correct option is (b).

The tax cut is temporary, and tax rates will steadily rise in subsequent years .

8). The correct option is (d).

Encourage imports into the US.

We know that an appreciation of the dollar tends to increase imports and decrease exports, thereby deteriorating the trade balance.

9). The correct option is (a).

Involuntary unemlpoyment would disappear.

We know that, the consequence of the efficiency wage theory is that the market for labor does may not clear, even in the long run, and unemployment may be persistenly higher than its natural rate.

10). The correct option is (a).

Fluctuations in investment spending are more volatile than GDP fluctuations.

There are more fluctuations in investment spending than in the GDP.