QUESTION: 1281

Under a ________ income tax system, as income grows, the average personal income tax liability of individuals and families increases.

corporate
regressive
discretionary
automatic
progressive

Answer(s): E

Explanation:

With rising incomes, more people find themselves above the "no tax due" cutoff. Others are pushed into a higher tax bracket. Therefore, during an economic expansion, revenue from the personal income tax increases more rapidly than income.

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QUESTION: 1282

The inflation rate in an economy currently in equilibrium jumps up unexpectedly. According to the Adaptive Expectations hypothesis, unemployment will in the short run.

all of these answers can happen.
decrease
increase
remain unaffected.

Answer(s): B

Explanation:

According to the Adaptive Expectations hypothesis, people consider the recent past as the best predictor of the immediate future. Therefore, when the inflation rate jumps up unexpectedly, workers using adaptive expectations will lag behind in their estimates and underestimate the future inflation. Hence, they will get into wage contracts that will under-compensate for the higher inflation. Over a short run, this will lead to improved profit margins for businesses, who will expand the output by utilizing more resources. In the short run, unemployment rate will fall.
Over the long run, this mistake gets corrected, wages increase and unemployment rate falls back to the natural rate.

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QUESTION: 1283

The Keynesian range (the horizontal range) of a short-run aggregate supply curve illustrates that changes in aggregate demand exert little impact on prices and a great deal of impact on output when

resources in the economy are fully employed.
aggregate demand exceeds aggregate supply.
natural unemployment is present.
substantial excess capacity is present.

Answer(s): D

Explanation:

Below the full employment capacity of the economy, increases in aggregate supply have little effect on the price level. This is the result of the Keynesian assumption that at less than full employment output levels, prices and wages are fixed since they are inflexible in a downward direction.

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QUESTION: 1284

Which of the following will most likely increase aggregate supply in the long run?

advances in technology
a low rate of capital formation
higher real interest rates due to the federal government's large budget deficits
unfavorable weather conditions in agricultural areas
an increase in the expected inflation rate

Answer(s): A

Explanation:

Improvements in technology can cause the aggregate supply curve to permanently shift to the right. This is because such advances make it possible to produce and sustain a larger rate of output from a specific resource supply.

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Free CFA-Level-I Exam Braindumps (page: 321)

QUESTION: 1281

Explanation:

QUESTION: 1282

Explanation:

QUESTION: 1283

Explanation:

QUESTION: 1284

Explanation: