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Author Question: The tax multiplier equals the change in ________ divided by the change in ________. A) ... (Read 58 times)

piesebel

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on: Jun 29, 2018
The tax multiplier equals the change in ________ divided by the change in ________.
 
  A) consumption spending; taxes B) taxes; consumption spending
  C) taxes; equilibrium real GDP D) equilibrium real GDP; taxes

Question 2

Assume that yields on bonds (rate of return) begin to fall while the stock market is booming, what should we see happen to the demand and price of stocks and why?
 
  What can we say about the opportunity cost of holding on to bonds in this situation?


qytan

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Reply #1 on: Jun 29, 2018
Answer to Question 1

D

Answer to Question 2

Lower bond yields will push many investors into stocks where they are seeking a higher rate of return. This should increase the demand for stocks and push up asset prices as well. The opportunity cost of holding on to bonds is high compared to owning stocks.


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