Starting from long-run equilibrium, a large tax increase will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. recessionary; lower; potential
B. expansionary; lower; potential
C. expansionary; higher; potential
D. recessionary; lower; lower
Answer: A
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The fact that output gaps will not last indefinitely, but will be closed by rising or falling inflation is the economy's:
A. income-expenditure multiplier. B. self-correcting property. C. short-run equilibrium property. D. long-run equilibrium property.
The theory that nominal exchange rates are determined so that the law of one price holds is called:
A. the fixed-exchange-rate rule. B. purchasing power parity. C. the law of supply and demand. D. the equilibrium principle.
If fiscal policy makers increase aggregate demand in an attempt to decrease the unemployment rate below the natural rate of unemployment, then _____
Fill in the blank(s) with the appropriate word(s).
If for a country, the quantity of its currency demanded exceeds the quantity supplied, then there is a:
A. balance of payments surplus B. balance of payments deficit C. balance of payments equilibrium D. trade balance