Question

0. The underlying reason why trade benefits both sides of a trading arrangement is rooted in the concept of __________________.

A. opportunity cost

B. specialization

C. absolute advantage

D. maximum production

11. A ____________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes.

A. proportional tax

B. regressive tax

C. progressive tax

D. excise tax

12. The government can use _____________ in the form of ____________________ to increase the level of aggregate demand in the economy.

A. an expansionary fiscal policy; an increase in government spending

B. a contractionary fiscal policy; a reduction in taxes

C. a contractionary fiscal policy; an increase in taxes

D. an expansionary fiscal policy; an increase in corporate taxes

13. _____________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation.

A. Standardized employment budgets

B. Discretionary fiscal policies

C. Automatic stabilizers

D. Budget expenditures

Answer 1

10. B. specialization

Both countries benefits from trade due to specialization in the production of a good by each country.

11. C. progressive tax

It implies that the rate of tax increases with an increase in income. Suppose, a man has an income of $ 5000 per year, and he has to pay 10% tax. If his income increases to $ 10,000, the rate of tax may be 15%. Similarly, the rate of income tax may be 20% if the income rises upto $ 20,000. Progressive taxes are equitable. Their real burden is more on the rich and less on the poor.

12. A. an expansionary fiscal policy; an increase in government spending

Expansionary fiscal policy is related to increase in government spending or reduction in taxes in order to increase AD. It shifts AD curve rightwards.

13. B. Discretionary fiscal policies

Fiscal policy is the policy related to government spending and taxation. AD decreases when there is either decrease in government spending or increase in taxation.