Refer to the above graph. Assume that the economy initially has a price level of P2 and output level Q2. If the price level is downwardly inflexible and the government decides to adopt a contractionary fiscal policy, what would most likely be the new equilibrium price level and output?
A. P2 and Q4
B. P1 and Q1
C. P1 and Q3
D. P2 and Q2
Answer: A
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The price elasticity of cigarettes has been estimated as -0.5. The government has decided that they want to decrease the amount that people in the United States smoke by 10%. It follows that they must institute measures that would raise the price of cigarettes by
a. 5% b. 10% c. 15% d. 20%
If the income elasticity for canned food is 0.8, then canned food is an inferior good
Indicate whether the statement is true or false
An open market purchase immediately impacts the banking system balance sheet by
a. increasing required reserves. b. increasing deposits. c. increasing the money multiplier. d. increasing excess reserves. e. none of the above.
Under which of the following conditions will the actual rate of unemployment tend to rise above the natural rate of unemployment?
a. Prices are stable and have been for the last four years. b. Inflation is 3 percent and was widely anticipated more than a year ago. c. Expansionary monetary policies lead to an unexpected increase in inflation from 3 percent to 7 percent. d. Restrictive monetary policies lead to an unexpected reduction in inflation from 6 percent to 2 percent.