In answering the following questions, use the equation BD = G – T and T = tY where t = tax rate.

The difference between demand pull and cost push inflation is that the former is caused by costs

Question

1.
The difference between
demand pull and cost push inflation is that the former is caused by costs
rising without an increase in real output. TRUE OR FALSE

2. In the article by Ross Gittins, it was implied that Joe Hockey
(Australia’s then Treasurer) has implemented some government reforms which
include reducing government spending: “… despite all the complaints about
spending cuts, Joe Hockey has ensured his budget is only a minor drag on
economic activity.” The key reason for this was to reduce the government
budget deficits that accumulated as a result of the Global Financial Crisis.
In answering the following questions, use the equation BD = G – T and T = tY
where t = tax rate.

What will happen to AD and total income if G is reduced, ceteris paribus?

		A. They will fall
		B. They will rise
		C. They will stay the same

3. In the article by Ross Gittins, it was implied that Joe Hockey
(Australia’s then Treasurer) has implemented some government reforms which
include reducing government spending: “… despite all the complaints about
spending cuts, Joe Hockey has ensured his budget is only a minor drag on economic
activity.” The key reason for this was to reduce the government budget
deficits that accumulated as a result of the Global Financial Crisis. In
answering the following questions, use the equation BD = G – T and T = tY
where t = tax rate.

If tax rates stay the same, what will happen to total tax revenue?

		A. It will rise
		B. It will fall
		C. It will stay the same

4. In the article by Ross Gittins, it was implied that Joe Hockey
(Australia’s then Treasurer) has implemented some government reforms which
include reducing government spending: “… despite all the complaints about
spending cuts, Joe Hockey has ensured his budget is only a minor drag on economic
activity.” The key reason for this was to reduce the government budget
deficits that accumulated as a result of the Global Financial Crisis. In
answering the following questions, use the equation BD = G – T and T = tY
where t = tax rate.

The effect on the budget deficit is as follows:

		A. It will definitely worsen
		B. It will definitely improve
		C. It is unclear whether it will worsen or improve

However
other economists may argue that the solution to reducing the current budget
deficit can be found by increasing growth in the economy by increasing
government expenditure on infrastructure projects that enhance productivity
and efficiency.

The effect on the budget deficit in the short run will be, ceteris paribus:

		A. An increase
		B. A decrease
		C. No change

With a large multiplier, the effect on total income and on tax revenue in the
long run will be, ceteris paribus:

		A. A decrease
		B. An increase
		C. No change

However other economists may argue that the solution to reducing the current
budget deficit can be found by increasing growth in the economy by increasing
government expenditure on infrastructure projects that enhance productivity
and efficiency.

The effect on the budget deficit in the long run will be, ceteris paribus:

		A. Both will definitely worsen
		B. Both will definitely improve
		C. It is unclear whether they will worsen or improv

The difference between demand pull and cost push inflation is that the former is caused by costs

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