Confused.... (1 Viewer)

[Chimelle]

In one of the MC, the question is:

'Other things being equal, which one of the following government policies is most likely to increase the inequality of income in the Australian economy?'

(a)A more progressive income tax
(b)a reduction in the cost of government services
(c)increased rebates to lower income earners
(d)a heavier reliance on regressive taxation

Answer is (b), but I thought it is (d)?

And another question. If Australia 'donates' money to another country, is that recorded as a debit in financial account? Cos I thought it's irreversible (doesn't need returns)?

 

[freeeeee]

D is correct, as regressive tax benefits high income earners more than low income earners it should increase inequality (e.g GST high income earners pay a lower amount in tax as a percentage of their income compared to low income earners. But B is the more correct asnwer. By reducing government services offered: such as training/education, financial advice and assitance, youth centres, counselling --> low income earners may be less informed about current demands of the labour market and this could cause structural unemployment, hidden unemployment (as workers become discouraged) which would ultimately lead to high income inequalty.

If Australia donates money overseas (Foreign Aid) it is recorded as debit on the current transfers on the Current Account.
This is because the Current Transfer measures products or financial resources that are provided without a specific good or service being provided in return.

However your question is not specific as what the donated money is for, if the donated money is being used to build capital in that country then it would be instead recorded as a Debit on the Capital and Financial Account

 

[Chimelle]

D is correct, as regressive tax benefits high income earners more than low income earners it should increase inequality (e.g GST high income earners pay a lower amount in tax as a percentage of their income compared to low income earners. But B is the more correct asnwer. By reducing government services offered: such as training/education, financial advice and assitance, youth centres, counselling --> low income earners may be less informed about current demands of the labour market and this could cause structural unemployment, hidden unemployment (as workers become discouraged) which would ultimately lead to high income inequalty.

If Australia donates money overseas (Foreign Aid) it is recorded as debit on the current transfers on the Current Account.
This is because the Current Transfer measures products or financial resources that are provided without a specific good or service being provided in return.

However your question is not specific as what the donated money is for, if the donated money is being used to build capital in that country then it would be instead recorded as a Debit on the Capital and Financial Account

I see. It was confusing at first but I get the logic now.

Thanks

 

[Blocy]

Oh as a side thought, does anyone know what to do when we get "Other things being equal", its always stumped me. Do I look at the Q in isolation, or do I just go about it like any other MC question?

 

[RishBonjour]

Oh as a side thought, does anyone know what to do when we get "Other things being equal", its always stumped me. Do I look at the Q in isolation, or do I just go about it like any other MC question?

lol, you just do the question. They basically say that because in economics 1000 things affect one thing, so for MC, and theoretical things, the "ceteris peribus" assumption is taken.

 

[Blocy]

mkay thanks!