Starting from long-run equilibrium, a large tax cut will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; higher; higher
B. expansionary; higher; potential
C. recessionary; higher; potential
D. recessionary; lower; lower
Answer: B
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Refer to Figure 2-11. What is the opportunity cost of producing 1 pound of cashews in Indonesia?
A) 3/8 of a bolt of cotton B) 5/8 of a bolt of cotton C) 2 2/3 bolts of cotton D) 320 bolts of cotton
The effectiveness of the federal funds rate as an operating target is limited because
A) the Treasury often uses federal funds market. B) reserve requirements often change. C) the demand for reserves is difficult to predict. D) the deposit expansion multiplier is difficult to predict.
Which of the following is true of a beneficial supply shock? a. It can lead to a temporary lower price level
b. It can create a recessionary gap. c. It can permanently decrease the economy's price level. d. It can shift the aggregate demand curve rightward. e. It can shift the aggregate demand curve leftward.
A tax is progressive if it raises a greater fraction of total tax revenue every year
a. True b. False Indicate whether the statement is true or false