Based on the figure below. Starting from long-run equilibrium at point C, a tax increase that decreases aggregate demand from AD1 to AD will lead to a short-run equilibrium at point ________ and eventually to a long-run equilibrium at point ________, if left to self-correcting tendencies.

A. D; C
B. D; B
C. A; B
D. B; C


Answer: B

Economics

You might also like to view...

Empirical evidence shows that the short-run Phillips curve was vertical during the 1950s and 1960s

Indicate whether the statement is true or false

Economics

An increase in quantity supplied can be caused by a(n)

a. decrease in quantity demanded b. rise in resource input prices c. increase in price d. decrease in the number of firms in the market e. tax levied on the producer

Economics

Which of the following is true?

a. Economic freedom is present if a country is a political democracy. b. Economic freedom ratings indicate the consistency of a nation's institutions and policies with personal choice, freedom of exchange, and protection of private property. c. Economies that are highly free tend to grow less rapidly than those with less economic freedom. d. All of the above are correct.

Economics

Which statement is true?

A. The highest paid professional athletes earn economic rent. B. Economic rent is paid on land, but not in the form of wages. C. Economic rent is earned mainly by the poor and the lower middle class. D. Economic rent is paid in proportion to the marginal revenue product of a resource.

Economics