If the public believes that the commitment to a nominal anchor is not credible, the effect of a positive aggregate demand shock is for ________
A) short-run aggregate supply to shift down
B) short-run aggregate supply to remain unchanged
C) short-run aggregate supply to shift up
D) inflation, but not economic activity, to increase
C
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In the absence of natural monopoly conditions, firms in a contestable market will
a. choose their price and output competitively. b. be able to successfully form a cartel and share monopoly profit. c. will not produce their output at the lowest possible cost. d. produce more than a monopoly but less than a competitive industry.
If Congress authorized the President to lower tax rates or to initiate spending projects when aggregate demand was inadequate, which consequence could be predicted most confidently?
A) Aggregate spending would be more stable over time. B) Recessions would be less severe. C) Recessions would occur less frequently. D) The political power of the President would increase. E) We would experience a lower rate of inflation.
An efficient tax is one that raises the desired tax revenue but creates the least possible
a. total burden. b. excess burden. c. tax incidence. d. tax shifting.
Assume the marginal propensity to consume (MPC) is 0.75 and the government increases taxes by $250 billion. The aggregate demand curve will shift to the:
a. right by $750 billion. b. left by $750 billion. c. left by $1,000 billion. d. right by $1,000 billion.