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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Oil prices have risen temporarily, due to political uncertainty in the Middle East. An advisor to the Fed suggests, "Higher oil prices reduce aggregate demand. To offset this we must increase the money supply
Then the price level won't need to adjust to restore equilibrium, and we'll prevent a recession." Analyze this statement using the IS—LM model.
The reason the short-run macro model suggests that the economy can operate either above or below its potential while in the long-run classical model the economy operates automatically at full employment is that
a. the short-run macro model is flawed and inaccurate b. the classical model is flawed and inaccurate c. the two models measure completely different aspects of the economy d. in the short run, spending affects output, but not in the long run e. in the short run the role of government in helping the economy return to equilibrium is not considered
If U.S. consumers become more optimistic about their future income and wealth, the consumption function will shift upward
a. True b. False Indicate whether the statement is true or false
It makes sense for Wendy's to advertise its new menu that allows customers to choose fruit or salad as a substitute for French fries in its values meals, as long as doing so raises:
A. revenue by less than the cost of advertising. B. costs. C. revenue by more than it raises the cost of advertising. D. any revenue at all.