We would expect that nations that devote a larger share of GDP to gross private

Question

We would expect that nations that devote a larger share of GDP to gross private domestic investment

to be highly industrialized nations.

to have a higher savings rate.

to have higher growth rate e in potential real GDP.

to have less volatile fluctuations in economic activity.

For a given level of GDP, an increase in personal income taxes will

increase disposable personal income.

reduce disposable personal income.

not affect disposable personal income.

increase savings and reduce consumption expenditures.

to be highly industrialized nations.

to have a higher savings rate.

to have higher growth rate e in potential real GDP.

to have less volatile fluctuations in economic activity.

Explanation / Answer

Q1. Investment tends to augment the production potential of an economy. Higher the level of investment, greater would be the increase in production potential of economy. This translates into greater future production. Greater future production implies that potential GDP of an economy will clock higher growth rate.

So, nations that devote a large share of GDP to Gross private domestic investment would have higher growth rate in potential real GDP.

Hence, the correct answer is option (3).

Q2. Personal disposable income is derived by subtracting the personal income taxes from the personal income.

So, an increase in personal taxes tends to decrease the personal disposable income.

Hence, the correct answer is option (2).

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