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ECS1601 ASSESSMENT 5 2024 SEMETSER 2 BMZ_ Which of the following statements is true about introducing the government sector into the economy? a. The size of the multiplier increases. b. Government spending is determined by its relationship with total i$2.84
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ECS1601 ASSESSMENT 5 2024 SEMETSER 2 BMZ_ Which of the following statements is true about introducing the government sector into the economy? a. The size of the multiplier increases. b. Government spending is determined by its relationship with total i
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Course
Economics IB (ECS1601)
Institution
University Of South Africa (Unisa)
Book
Economics for South African Students
ECS1601 ASSESSMENT 5 2024 SEMETSER 2 BMZ_
Which of the following statements is true about introducing the government sector into the economy?
a. The size of the multiplier increases.
b. Government spending is determined by its relationship with total income.
c. Including government spendin...
Started on Wednesday, 18 September 2024, 10:22 AM
State Finished
Completed on Wednesday, 18 September 2024, 11:35 AM
Time taken 1 hour 13 mins
Marks 20.00/20.00
Grade 100.00 out of 100.00
Question 1
Correct
Mark 1.00 out of 1.00
Which of the following statements is true about introducing the government sector into the economy?
a. The size of the multiplier increases.
b. Government spending is determined by its relationship with total income.
c. Including government spending represents a leakage in the economy.
d. An increase in government spending raises aggregate spending.
The government plays an important role in the economy. The government sector provides public goods such as law and
order, education and health, among others. When government undertakes these projects, money is injected into the economy.
On the other hand, to finance this spending, government must borrow and charge taxes. Taxes represent a leakage, as money
is withdrawn from the economy. When government spending is increased, this is an injection of money into the economy. As
a result, aggregate spending will increase. Firstly, government spending does not affect the multiplier. Secondly, government
spending is an exogenous variable and therefore not determined by total income (there is no relationship between
government spending and total income). Thirdly, government spending represents an injection.
Which of the following is correct about taxes in the economy?
a. A tax rate of 0.15 means that 15 per cent of income is consumed on goods and services.
b. Taxes are a function of income.
c. Taxes increase income available to spend on goods and services.
d. The introduction of taxes in the economy increases the slope of the consumption function.
Taxes are a function of income because a portion of income goes to tax. There is a negative relationship between taxes and
disposable income. As the tax rate increases, disposable income falls, vice versa.
Firstly, A tax rate of 0.15 implies that 15 per cent of income is paid to tax. Secondly, since 15 per cent goes to tax, only 85 per
cent will be available to spend and save. Therefore, income available for spending and saving has decreased. Thirdly,
introduction of taxes reduces the slope of the consumption function. Please see discussion in number 8 above.
When the tax rate decreases, the size of the multiplier___________. As a result, the equilibrium level of income
will_____________.
a. decreases; increase
b. increases; remain unchanged
c. decreases; decrease
d. increases; increase
Your answer is correct.
When the tax rate is added, it reduces the consumption function, the size of the multiplier decreases, and as a result, the
equilibrium level of income also decreases. When the tax rate decreases, the disposable income increases, and the size of
the multiplier also increases. As a result, the equilibrium level of income increases.
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