Inside the circular flow of income, an elevation in domestic income will generally stimulate an increase in ?
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Answer: B. taxes
Explanation
As domestic income rises, tax revenues collected by the government automatically increase due to higher taxable economic activity. Higher personal earnings and corporate profits push individuals and businesses into higher tax brackets. This automatic fiscal response connects expanding national income directly to growing government tax collections. The circular flow of income illustrates how money moves between households, firms, and government sectors. Income taxes and corporate levies act as fiscal leakages that withdraw purchasing power from the circular flow. Automatic stabilizers help smooth business cycle fluctuations without requiring new legislative action.
Government budgets benefit from rising national income because tax receipts expand automatically during economic booms. Macroeconomic models rely on tax responsiveness parameters to estimate fiscal multiplier effects accurately. Understanding tax leakage helps economists forecast how changes in consumer spending impact public finances. Exports are determined by foreign demand and exchange rates rather than directly by domestic income levels. Inventories fluctuate based on business sales expectations and unplanned demand drops rather than domestic income. Imports typically rise with domestic income, making taxes the primary direct fiscal revenue response.
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Answer: B. $400,000 units
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Answer: C. reduced
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Q3. What revenue does the government acquire when a tariff is imposed?
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Answer: B. $100,000
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Answer: C. Price war
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Answer: A. Yujiro Hayami
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