1. Fill in the missing information wherever there is a question mark. 2. Consump
ID: 1167586 • Letter: 1
Question
1. Fill in the missing information wherever there is a question mark.
2. Consumption is $6 trillion, investment is $2 trillion and government purchases are $2.5 trillion. The country exports $1 trillion and imports $1.5 trillion. Find net exports and solve for the level of aggregate demand.
3. Answer True or False for each of the following
In the real world government spending is independent of income levels.
Most Americans actually pay more to Social Security/Medicare than income taxes.
Excise taxes are proportional because everyone pays the same amount.
Tax rates in the US are higher than is usual among developed countries.
Progressive taxes are based on the ability to pay principle.
In an open economy aggregate demand or aggregate expenditures is C + I + G.
A trade deficit lowers the demand for a country’s goods.
The US has not run a trade surplus for over 20 years.
The US is the world’s largest exporter but not the world’s largest importer.
Trade makes up a larger percent of the US economy than a couple of generations ago.
Explanation / Answer
(1) Question is incomplete & not understood.
(2)
(a) Net exports = exports - imports = $(1 - 1.5) trill = $0.50 trill
So,
(b) Aggregate demand = consumption + investment + government purchase + net exports
= $(6 + 2 + 2.5 + 0.5) trill = $11 trill
(3)
(a) FALSE.
In real world, government spending is always defined as a % of GDP (Income). However, government spending is independent of individual incomes.
(b) TRUE
Social security tax is deducted from salary even if individuals do not fall under income tax brackets.
(c) FALSE
Excise tax is proportional because the % of tax levied on value of goods is the same, not because the absolute dollar payment of tax is the same for every taxpayer.
(d) TRUE
(e) TRUE
Progressive taxation charges a higher marginal tax for individuals with higher taxable income, thus based on ability to payy.
(f) FALSE
In open economy, aggregate demand = C + I + G + Net exports
(g) TRUE
Trade deficit occurs when exports fall short of imports. A country's exports represent global demand for its goods.
(h) TRUE
(i) FALSE
US is world's largest importer country.
(j) TRUE
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