Both Jones and Smith agree that the economy is in a recessionary gap. Jones proposes a tax cut and believes that it will raise Real GDP and lower the price level. Smith agrees that a tax cut will raise Real GDP, but he argues that it will not lower the price level in the short run. It follows that
A) both Jones and Smith believe that lower taxes will shift the AD curve rightward, but will not shift the SRAS curve.
B) both Jones and Smith believe that lower taxes will shift the SRAS curve rightward, but will not shift the AD curve.
C) Jones believes that the tax cut will shift the SRAS curve rightward and the AD curve will not shift. Smith believes that the AD curve will shift rightward and the SRAS curve will not shift.
D) Smith believes that the tax cut will shift the SRAS curve rightward and the AD curve will not shift. Jones believes that the AD curve will shift rightward and the SRAS curve will not shift.
C
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Refer to Figure 5-2. The private profit-maximizing quantity for the firm is
A) Qa. B) Qb - Qd. C) Qb. D) Qd.
Refer to Table 11-8. Elegant Settings experiences
A) increasing returns beyond an output level of 400. B) economies of scale up to an output level of 400. C) diminishing returns up to an output level of 400. D) economies of scale at an output of 300 or less and diseconomies of scale at an output level above 400.
According to the Keynesian view, if real GDP is slowing and the economy appears to be headed for a recession, a reduction in tax rates is
a. highly appropriate because it will stimulate aggregate demand and, thereby, help to strengthen the economy. b. highly inappropriate because it will either reduce the size of the budget surplus or increase the size of the deficit. c. not very important because the "demand stimulus effects" of the tax cut will be largely offset by additional borrowing. d. not very important because the "demand stimulus effects" of lower current taxes will be largely offset by the expectation of higher taxes in the future.
If nominal GDP rises from one year to the next, then
What will be an ideal response?