Suppose consumer confidence declines and as a result, consumer spending decreases by 4 billion dollars.
Other things equal, if households spend 0.75 of each extra dollar of income and save the remaining 0.25, by how much will spending decrease during the third round through the circular flow?
A) 1 billion
B) 2.25 billion
C) 3 billion
D) 4 billion
Question 2
The Laffer curve is a curve showing
A) output as a function of the tax rate.
B) tax revenue as a function of the tax rate.
C) government expenses as a function of how liberal the government is.
D) the tax rate as a function of government expenses.
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