When Policy Makers Choose Between Tax Policy and Spending Policy

question 116

Multiple Choice

When policy makers choose between tax policy and spending policy to affect the level of aggregate demand, they tend to choose on the basis of

• A)how large a public sector they want.
• B)how much they want to change aggregate demand.
• C)how much they want to change aggregate supply.
• D)which has the larger multiplier.

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Definitions:

Progressive Taxes

A tax system in which the tax rate increases as the taxable amount increases, placing a higher tax burden on individuals with higher incomes.

Proportional Taxes

A tax system where the tax rate remains constant regardless of the amount on which the tax is imposed, resulting in taxes being proportionate to the income.

Direct Taxes

Taxes paid directly to the government by the individual or organization on whom it is levied, such as income tax or property tax.

Direct Tax

A form of taxation where the burden directly falls on the income or wealth of the individual or entity being taxed, such as income tax or property tax.