Exhibit 11-6 Aggregate demand and supply model
In Exhibit 11-6, if the aggregate demand curve is at AD1, the government should:
A. raise taxes to move to AD2.
B. cut taxes to move to AD2.
C. cut taxes to move to AD3.
D. cut spending to move to AD2.
Answer: B
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In the above figure, if the interest rate is 2 percent per year, the ________ because ________
A) demand for money curve will shift; the quantity of money demanded is less than the quantity of money supplied B) demand for money curve will shift; the quantity of money demanded is greater than the quantity of money supplied C) interest rate will change; the quantity of money demanded is less than the quantity of money supplied D) interest rate will change; the quantity of money demanded is greater than the quantity of money supplied E) supply of money curve will shift; the quantity of money demanded is greater than the quantity of money supplied
The default risk premium is
A) relevant only for securities issued by very small companies. B) the additional yield a saver requires for holding a bond with some default risk. C) zero for corporate bonds, but quite substantial for corporate stock. D) constant across the business cycle.
What do we mean when we state that a particular principal-agent payment scheme is inefficient?
A) The principal and agent could find another agreement that would increase the sum of the owner's revenue and the worker's payment. B) The agreement involves the highest level of effort for the worker. C) The agreement leads to the lowest level of revenue for the owner. D) The sum of the income taxes paid by the owner and the worker is too high.
An oligopolistic price leader increases the price of its product. If all other firms follow the leader's example, the price leader will:
A. decrease its price. B. maintain its new price. C. increase its price. D. increase its quantity of output.