Assume That the RBA Is Expected to Respond to Any

question 49

Multiple Choice

Assume that the RBA is expected to respond to any event by keeping output constant (i.e., equal to its initial level) . An unexpected increase in taxes will cause:

• A) stock prices to fall.
• B) stock prices to rise.
• C) no change in stock prices.
• D) an ambiguous effect on stock prices.
• E) stock prices to rise only if goods prices rise.

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Definitions:

Income Effect

The change in consumer's purchasing behavior due to a change in their income, affecting how much of a product they buy.

Tax Revenues

The income that is gained by governments through taxation, used to fund public services, infrastructure, and government obligations.

Government Expenditures

The total amount of money spent by the government in a certain period, including spending on public services, social security benefits, and infrastructure projects.

Monetary Policy

The actions of a central bank or other regulatory authority that determine the size and growth rate of the money supply, which in turn affects interest rates.