Midterm 2 Flashcards
True or False:
a) Reducing taxes will always increase employment.
False
True or False.
b) The real wage must increase when taxes are reduced.
False
True or False
The output (Y) is dependent on both total factor productivity (z) and capital stock (K).
true
True or False.
Disposable income increases with lower taxes
True
True or False.
Employment may vary when taxes are lowered
True
If taxes are reduced what will happen to the consumers consumption
It may increase, or decrease or remain unchanged
True or False.
When taxes are reduced aggregate output increases
True
What is the relationship between the magnitude of the change in consumption and the magnitude of the change in taxes?
May be greater than, less than, or equal to
When there is an increase in total factor productivity, what are the 3 things affected?
Increase in real wage,
increase in output,
increase in consumption
If MRSL increases what does that mean?
The consumer requires a smaller increase in consumption to work an additional hour
True or false.
A change in preference increases real wage and decrease output, hours worked, and consumption
True
True or false.
A reduction in capital stock decreases productivity, lowers aggregate output, reduced the demand for labor, and typically reduces real wages. Consumption may fall due to lower incomes.
True
In a recession, consumption is
procyclical
In recession, employment is
procyclical
In a recession, real wage is
procyclical
Why is consumption is more variable in the data than theory seems to predict?
consumers connot borrows all they would like at the market real interest rate and market loan interest rates are usually higher than interest rates at which consumers lend
How is the consumers motive to smooth consumption captured by the shape of an indifference curve?
this is captured by the convexity of an indifference curve
True or False.
If there is an increase in current insome on consumption in each period and on saving.
C will increase
C’ will increase
Savings will increase.
True
If there is a temporary increase in the consumers income…
only current income increases
True or False.
A governement finances its purchases in the 2 period model but issuing bonds and taxes
True
