Based on the figure below. Starting from long-run equilibrium at point C, a tax increase that decreases aggregate demand from AD1 to AD will lead to a short-run equilibrium at point ________ and eventually to a long-run equilibrium at point ________, if left to self-correcting tendencies.
A. D; C
B. D; B
C. A; B
D. B; C
Answer: B
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Based on the theory of purchasing power parity, in the long run, currencies of countries with significant inflation will tend to:
A. be flexible. B. appreciate. C. have nominal exchange rates. D. depreciate.
The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed
a. acts when a majority of member banks agree on policy and the banks rarely agree. b. earns interest on discounting and cannot afford to lose the revenue. c. does not know how banks will respond to discount rate changes. d. has been directed by Congress to set the discount rate at a permanent level.
If the government were to impose a fine of $4,000 for each unit of air-pollution released by a fertilizer plant, the policy would be considered
a. a subsidy. b. a regulation. c. a corrective tax. d. an application of the Coase theorem.
The price elasticity of demand for a variable input will be more elastic in all the following cases EXCEPT
A) the greater the price elasticity of demand for the final product. B) the easier it is for a particular variable input to be substituted for by other inputs. C) the larger the proportion of total costs accounted for by a particular variable input. D) the shorter the time period being considered.