In the short run, a negative supply shock
a. causes firms' unit costs to decrease
b. shifts the AS curve to the right
c. causes output to decrease and the price level to increase
d. shifts the AD curve to the left
e. causes both output and the price level to decrease
C
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A model:
A) is often based on simplifying assumptions that are not necessarily true. B) can be tested without data or statistics. C) is a more complex representation of reality than a theory. D) can never be used to predict the future but helps explain the past.
If the MPC = 0.75, a decrease in personal taxes from $100 billion to $80 billion will increase real GDP by
A) $20 billion. B) $40 billion. C) $60 billion. D) $80 billion.
Political institutions are more likely to allow and encourage the emergence of good economic institutions and policies when
a. the top government executives have enough power to impose good economic arrangements on the nation. b. constitutional constraints prevent laws and regulations that weaken the rights of property owners, curtail voluntary exchange, and provide for decentralization of government. c. the elected executive and legislative branches have fewer constraints on what they can do, leaving them free to innovate and improve economic institutions. d. well organized interest groups exert a powerful influence on the political process.
When an economy is in a recession, discretionary fiscal policy would call for ________, and the automatic stabilizers would ________.
A. lowering tax rates; lower tax revenues B. increasing tax revenues; increase tax rates C. increasing tax rates, lower tax revenues. D. increasing tax rates; increase tax revenues