**Transcription for Educational Website:**---**7. Explain how the above graph illustrates the built-in stability of a progressive tax structure.**The graph illustrates that when GDP expands, tax revenues (increase), which (reduces) aggregate demand (AD). When GDP declines, net taxes are (negative), which will (add to) aggregate demand.The graph features two intersecting lines. The x-axis represents GDP, while the y-axis represents government purchases (G) and tax revenues (T). The upward-sloping line labeled 'T' shows tax revenues increasing with higher GDP. The horizontal line labeled 'G' represents constant government purchases.Key points marked on the GDP axis are H, J, K, and L. If the full-employment GDP for the above economy is at J, the cyclically-adjusted budget will have a (surplus), and if it is at L, the cyclically-adjusted budget will have a (deficit). The degree of built-in stability in the above economy could be increased by changing the tax system so that the tax line has a (higher) slope.

The gross domestic product (GDP) is a monetary indicator of the market value of all final products and services produced over a given period of time.Increase, reduces, negative, add to. ( Due to progressiveness of the tax when GDP rises, income rises, so tax revenue also rises, vice versa. This increase in tax revenue reduces AD and thus stabilizes the economy during GDP expansion ) Deficit, Surplus, Higher. ( At J, (T < G), so there is a deficit and at L ( T > G ), so there is surplus. Progressive tax line is more vertical or inelastic in nature, so has a higher slope )

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G H. K GDP 7. Explain how the above graph illustrates the built-in stability of a progressive tax structure. The graph illustrates, when GDP expands, tax revenues ( increase, decrease ) which (increases, reduces ) aggregate demand (AD). When GDP declines, net taxes are ( positive, negative ), then, which will (add to, subtract from) aggregate demand. If the full-employment GDP for the above economy is at J, the cyclically-adjusted budget will have a ( surplus, deficit), and if it is at L, the cyclically-adjusted budget will have a ( surplus, deficit). The degree of built-in stability in the above economy could be increased by changing the tax system so that the tax line has a (higher, lower ) slope. Government purchase (G) and tax revenues (T)

G H. K GDP 7. Explain how the above graph illustrates the built-in stability of a progressive tax structure. The graph illustrates, when GDP expands, tax revenues ( increase, decrease ) which (increases, reduces ) aggregate demand (AD). When GDP declines, net taxes are ( positive, negative ), then, which will (add to, subtract from) aggregate demand. If the full-employment GDP for the above economy is at J, the cyclically-adjusted budget will have a ( surplus, deficit), and if it is at L, the cyclically-adjusted budget will have a ( surplus, deficit). The degree of built-in stability in the above economy could be increased by changing the tax system so that the tax line has a (higher, lower ) slope. Government purchase (G) and tax revenues (T)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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