Suppose That Interest Income Is Exempted from Taxation,which Costs the Treasury

question 112

Multiple Choice

Suppose that interest income is exempted from taxation,which costs the Treasury $100 billion in tax revenues,while at the same time transfer payments are reduced by $100 billion.Together,these two changes in fiscal policy ________ national saving while moving the distribution of income toward greater ________ .

• A)reduce,equality
• B)reduce,inequality
• C)increase,equality
• D)increase,inequality
• E)do not affect,equality

---

Definitions:

Inflationary Gap

A scenario where aggregate demand exceeds aggregate supply at the level of full employment, leading to an increase in general price levels.

Equilibrium GDP

The level of Gross Domestic Product where aggregate supply equals aggregate demand, indicating an economy in balance without tendency to change.

Full Employment GDP

The total market value of all goods and services produced domestically by a country when all available resources are fully utilized.

Multiplier

In economics, a factor that quantifies the change in economic output as a result of a change in other economic variables, such as spending or investment.