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Lecture 2

PSY 3010 Lecture Notes - Lecture 2: Regressive Tax, Fiscal Multiplier, Proportional TaxExam

Course Code
PSY 3010

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Chapter 10
1. Inventories play a major role in the effects of keeping expenditures close to real GDP. When
inventories fall then the expenditures are greater than real GDP. When inventories increase
unexpectedly then the expenditures are the closest to read GDP than usual.
6. Foreign repercussions have a very high value in the spending multiplier.
18. The countries of Mexico and Canada rely heavily on the economy of the United States because
almost all of their exports come to the United States. South Africa and Turkey do not export a
substantial about of goods to the United States so they do not have to rely heavily on the economy of
the United States.
Chapter 11
1. Aggregate demand must be very calm and consistent to cut the GDP gap. The AS curve effects the
fiscal policy greatly.
2. Taxes are the big thing when it comes to financing government spending.
3. Government deficits can lead the government into more debt and even could lead the government to
not be able to pay their bills at all.
4. Automatic Stabilizers are elements of fiscal policy that automatically change in value as national
income changes. Examples are: when real GDP falls, tax revenues go down, and government spending
on unemployment and welfare benefits goes up.
5. Industrial companies try to expand on jobs and providing for their people while developing countries
try and grow their government while also growing their population.
6. Real GDP will rise because the amount of spending by the consumer and government also rises.
7. A larger government can cause a trade deficit because that government could have a big part in
international trade.
8. They grow because the government still has to spend money to keep the country going but cannot
afford to pay those bills because of the recession.
9. A progressive tax is a tax whose rate rises as income rises. A regressive tax is a tax imposed in such a
manner that the tax rate decreases as the amount subject to taxation increases. A proportional tax is
a tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or
Chapter 12
1. The four functions of money are a medium exchange, a unit of account, a store of value, and a
standard of deferred payment.
2. People smoked a lot back then and since money was not available to them they could use cigarettes
as money because everybody had a good use for cigarettes.
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