G H. K GDP 7. Explain how the above graph illustrates the built-in stability of a progressive tax structure. The graph illustrates, when GDP expands, tax revenues ( increase, decrease ) which (increases, reduces ) aggregate demand (AD). When GDP declines, net taxes are ( positive, negative ), then, which will (add to, subtract from) aggregate demand. If the full-employment GDP for the above economy is at J, the cyclically-adjusted budget will have a ( surplus, deficit), and if it is at L, the cyclically-adjusted budget will have a ( surplus, deficit). The degree of built-in stability in the above economy could be increased by changing the tax system so that the tax line has a (higher, lower ) slope. Government purchase (G) and tax revenues (T)
G H. K GDP 7. Explain how the above graph illustrates the built-in stability of a progressive tax structure. The graph illustrates, when GDP expands, tax revenues ( increase, decrease ) which (increases, reduces ) aggregate demand (AD). When GDP declines, net taxes are ( positive, negative ), then, which will (add to, subtract from) aggregate demand. If the full-employment GDP for the above economy is at J, the cyclically-adjusted budget will have a ( surplus, deficit), and if it is at L, the cyclically-adjusted budget will have a ( surplus, deficit). The degree of built-in stability in the above economy could be increased by changing the tax system so that the tax line has a (higher, lower ) slope. Government purchase (G) and tax revenues (T)
Chapter21: Fiscal Policy
Section: Chapter Questions
Problem 19SQ
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Transcribed Image Text:J
K
L.
GDP
7. Explain how the above graph illustrates the built-in stability of a progressive tax structure.
The graph illustrates, when GDP expands, tax revenues ( increase, decrease ) which (increases,
reduces ) aggregate demand (AD). When GDP declines, net taxes are ( positive, negative ), then,
which will (add to, subtract from) aggregate demand.
If the full-employment GDP for the above economy is at J, the cyclically-adjusted budget will
have a ( surplus, deficit), and if it is at L, the cyclically-adjusted budget will have a ( surplus,
deficit). The degree of built-in stability in the above economy could be increased by changing the
tax system so that the tax line has a (higher, lower ) slope.
Government purchase (G)
and tax revenues (T)
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