Question : The study of how changes in taxes affect consumer spending is an example of:
Option 1: Behavioral economics
Option 2: Public finance
Option 3: International trade theory
Option 4: Game theory
Correct Answer: Public finance
Solution : The correct answer is (b) Public finance.
Public finance is a branch of economics that focuses on the role of government in the economy, particularly in terms of taxation, public spending, and economic policies. It analyzes how government actions, such as changes in taxes, impact various aspects of the economy, including consumer behavior. The study of how changes in taxes influence consumer spending falls within the realm of public finance as it examines the effects of fiscal policies on individual and aggregate economic outcomes. It explores topics such as tax incidence, tax policy design, and the economic consequences of taxation.
