All else equal, which of the following would result in a higher quantity of consumption in the macroeconomy? (There are multiple correct responses; select all that apply.)Group of answer choicesA stock market collapse$1,400 allocated to people with incomes below $50,000Across-the-board income tax reductions that are confidently expected to be permanentHigher real interest ratesFederal tax and spending changes that alleviate poverty and reduce income inequalitythat
Question
All else equal, which of the following would result in a higher quantity of consumption in the macroeconomy? (There are multiple correct responses; select all that apply.)Group of answer choicesA stock market collapse50,000Across-the-board income tax reductions that are confidently expected to be permanentHigher real interest ratesFederal tax and spending changes that alleviate poverty and reduce income inequalitythat
Solution
The options that would result in a higher quantity of consumption in the macroeconomy, all else equal, are:
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50,000: This would increase the disposable income of these individuals, leading to an increase in consumption as they have more money to spend.
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Across-the-board income tax reductions that are confidently expected to be permanent: This would increase the disposable income of all individuals, leading to an increase in consumption as they have more money to spend.
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Federal tax and spending changes that alleviate poverty and reduce income inequality: This would increase the disposable income of lower-income individuals, leading to an increase in consumption as they have more money to spend.
A stock market collapse and higher real interest rates would not result in a higher quantity of consumption. A stock market collapse would likely lead to a decrease in consumption as people's wealth decreases. Higher real interest rates would discourage borrowing and spending, leading to a decrease in consumption.
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