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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Suppose labor productivity differences are the only determinants of comparative advantage, and Brazil and Chile both produce only coffee and sugar. In Chile, either 5 units of coffee or 2 units of sugar can be produced in one day. In Brazil, a day of labor produces either 2 units of coffee or 1 unit of sugar. Calculate the opportunity cost of producing sugar in Brazil
a. Half a pound of coffee b. 4 pounds of coffee c. 1 pound of coffee d. 2 pounds of coffee e. One and a half pounds of coffee
Goods that are actually produced by firms are not really limited in supply, because the firms can always produce more of them
a. True b. False Indicate whether the statement is true or false
Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and GDP Price Index in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises, and GDP Price Index rises. b. The real risk-free interest rate falls, and GDP Price Index falls. c. The real risk-free interest rate rises, and GDP Price Index falls. d. The real risk-free interest rate and GDP Price Index remain the same. e. There is not enough information to determine what happens to these two macroeconomic variables.
A lender expects to earn a real interest rate of 4.5% over the next 12 months. She charges a 9.25% (annual) nominal rate for a 12-month loan. What inflation rate is she expecting? If the lender is in a 30% marginal tax bracket, the borrower in a 25% marginal tax bracket, and they both have the same inflation expectations, what are the real after-tax rates each expects?
What will be an ideal response?