Based on the figure below. Starting from long-run equilibrium at point C, a tax cut that increases aggregate demand from AD to AD1 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. B; C
C. B; A
D. D; B
Answer: D
You might also like to view...
If the government wants to borrow money to build new highways; then the
A) interest rate will be higher. B) quantity of funds available in the market will increase. C) private investment will decrease. D) All of the above.
Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $9 . Which of the following will happen?
a. The firm will not sell any output. b. The firm will sell less output than its competitors. c. The firm will make more profit than it could at the $10 price. d. The firm will make less profit than it could at the $10 price. e. The firm's revenue will increase and its costs may decrease.
If aggregate expenditures exceed real GDP, then:
a. employment falls. b. the economy will have deflation. c. firms are depleting their inventories. d. the money supply will increase.
If the full-employment level of income in Figure 9.7 is $300 billion, there is
A. Achievement of macro equilibrium. B. An inflationary gap of $500 billion per year. C. A recessionary gap of $50 billion per year. D. A recessionary gap of $100 billion per year.