Assume the federal government raises taxes (a contractionary fiscal policy). If the tax increase affects AS and AD equally, then real GDP will ________ and the price level will ________
A) decrease; decrease
B) increase; be unchanged
C) increase; increase
D) decrease; be unchanged
E) increase; decrease
D
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In the above figure, if a subsidy is granted to producers that generates an efficient level of production, then the deadweight loss will be
A) zero. B) $500 C) $1,000. D) $2,000.
Denise is thinking about setting up a butterfly garden in her backyard. She estimates that it will cost her $2,000 to purchase and install special plants and an irrigation system to attract butterflies. The benefit she expects to receive is $1,800 . In addition, neighbor Billy will receive a benefit of $150 and neighbor Sammy will receive a benefit of $100 . From this, we can conclude that:
a. butterflies are a negative externality for Billy and Sammy. b. Denise will set up the butterfly garden without any help from her free-rider neighbors. c. if Sammy refuses to contribute to the butterfly garden, he will be unable to enjoy its benefits if it is built. d. if Billy refuses to contribute to the butterfly garden, Denise will not have one. e. if Billy and Sammy contribute the amounts at which they value the butterfly garden, Denise will set it up.
Sarah used to be a music teacher at a local school, but got let go last year due to budget cuts. Sarah now works part-time as a waitress while looking for another teaching job. Sarah would be considered:
A. frictionally unemployed. B. underemployed. C. structurally unemployed. D. real-wage unemployed.
The Federal Reserve increases interest rates when it wants to reduce aggregate demand to fight inflation. How do increases in the interest rate reduce aggregate demand?
What will be an ideal response?