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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If the government increases taxes, which of the following will occur in the short run?
a. An increase in GDP, an increase in the price level, an increase in money demand and an increase in the interest rate. b. An increase in GDP, an increase in the price level, a decrease in money demand and an increase in the interest rate. c. An increase in GDP, a decrease in the price level, an increase in money demand and an increase in the interest rate. d. A decrease in GDP, a decrease in the price level, a decrease in money demand and a decrease in the interest rate. e. A decrease in GDP, an increase in the price level, an increase in money demand and a decrease in the interest rate.
Assuming that bus travel is an inferior good, an increase in consumer income, other things being equal, will cause
a. an upward movement along the demand curve for bus travel. b. a downward movement along the demand curve for bus travel. c. a rightward shift in the demand curve for bus travel. d. a leftward shift in the demand curve for bus travel.
An economy has a current inflation rate of 7%. If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2, then how much annual output must be sacrificed in the transition?
a. 10% b. 8% c. 6% d. None of the above is correct.
If you were a debtor you would prefer
A. Deflation B. Disinflation C. Unanticipated inflation D. Anticipated inflation