In the above diagram, tax revenues vary:
A)directly with the level of GDP.
B)inversely with the level of GDP.
C)directly with the level of government spending.
D)inversely with the level of government spending.

Question

In the above diagram, tax revenues vary:
A)directly with the level of GDP. 
B)inversely with the level of GDP. 
C)directly with the level of government spending. 
D)inversely with the level of government spending.

Quizplus · Accepted Answer

Tax revenues vary directly with the level of GDP. As the level of GDP increases, there is usually an increase in the level of economic activity, leading to an increase in taxable income, consumption, and profits. This, in turn, leads to higher tax revenues for the government. Conversely, when the level of GDP decreases, tax revenues also decrease due to lower economic activity and lower taxable incomes.

In the Above Diagram, Tax Revenues Vary