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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Holding other factors constant, an increase in the capital stock ________ the real wage and ________ employment.
A. increases; increases B. decreases; increases C. increases; does not change D. increases; decreases
Equilibrium in the foreign exchange market implies equilibrium in the balance of payments
Indicate whether the statement is true or false
Which of the following statements is consistent with a given (i.e., fixed) LM curve?
A) A reduction in the interest rate causes investment spending to increase. B) A reduction in the interest rate causes money demand to decrease. C) A reduction in the interest rate causes an increase in the money supply. D) An increase in output causes an increase in demand for goods. E) An increase in output causes an increase in money demand.
While many analysts defended the actions taken by the Fed and the Treasury to respond to the financial crisis in 2008, others were critical of these actions. The critics were concerned that by not allowing large firms to fail
A) smaller firms will resent not receiving similar assistance. B) stockholders and bondholders of these firms were not allowed to receive the proceeds from the sale of assets that would have occurred if the firms had declared bankruptcy. C) there is an increased likelihood that other firms will engage in risky behavior in the future with the expectation that they will also not be allowed to fail. D) there will be less competition in the U.S. economy, which could led to higher prices for consumers.