The Demand- Side Effect of a Change in Taxes Is

question 65

Multiple Choice

The demand- side effect of a change in taxes is less than the same sized change in government expenditure because

• A)changes in government expenditure do not directly affect consumption.
• B)the amount by which taxes change is affected by the MPC.
• C)only part of the increase in disposable income from the tax cut is spent.
• D)tax rates are the same regardless of income levels.

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Definitions:

CPI

The Consumer Price Index reflects the weighted average price changes in a variety of consumer goods and services, such as medical services, food, and transportation.

Goods and Services

Physical products (goods) and intangible assistance or benefits (services) produced to satisfy the wants and needs of consumers.

Consumer Price Index

An index measuring the change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Inflation Rate

The level at which the total pricing metrics for goods and services peak, impairing the utility of money.