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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In the presence of a negative externality
a. the market solution is efficient, but the market price is too high b. the market price is efficient, but the corresponding quantity is inefficient c. the market solution results in too little output being produced d. the efficient outcome is determined where the marginal social cost and market demand curves intersect e. the efficient outcome is determined where the marginal cost and market supply curves intersect
An institution that issues a currency at a fixed rate in exchange for an equivalent amount of another designated currency and invests the funds in bonds and liquid assets that provide 100 percent backing for the currency units issued is called
a. a central bank. b. the International Monetary Fund. c. the World Trade Organization. d. a currency board.
When arbitrage occurs across countries with flexible exchange rates and when the bonds in each country are identical and there are no barriers to capital flows:
A. the inflation rates in each country will be identical. B. the interest rates on the bonds will be identical. C. the prices of the bonds will be identical. D. none of the answers provided is correct.
Global imbalances may be reduced by a reduction in excess savings.
Answer the following statement(s) true (T) or false (F)