When taxes are increased, disposable income _____ leading to a(n) _______ and a

Question

When taxes are increased, disposable income _____ leading to a(n) _______ and a ______ shift in aggregate demand.

Question 11 options:

1)

2)

3)

4)

rises; increase in I; right

All else equal, the lower the default risk, the ___ of the bond.

Question 12 options:

1)

2)

3)

4)

1)

falls; decrease in I; left

2)

rises; increase in C; right

3)

falls; decrease in C; left

4)

rises; increase in I; right

All else equal, the lower the default risk, the ___ of the bond.

Question 12 options:

1)

lower the price

2)

higher the price

3)

higher the face value

4)

lower the face value

Explanation / Answer

11. Ans : 3 ) falls; decrease in C; left

Explanation :

When taxes are increased, disposable income will fall.

Personal disposable income = Personal income - Direct Tax.

So decrease in disposable income leads to a fall in consumption . As a result the aggregate demand curve will shift towards left.

12. Ans : 2 ) higher the price

Explanation : Lower default risk will lead to higher demand for the bond . As a result the price of bond will increase.

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