Suppose a tax cut that had been anticipated by households and businesses doesn't happen. Describe a new Keynesian analysis of the consequences of this "event."
What will be an ideal response?
The non-occurrence of an anticipated tax cut has the same effect as an unanticipated tax increase: the aggregate demand curve shifts to the left. As output falls below potential and inflation falls, the decrease in expected inflation increases aggregate supply, so output begins to recover and inflation falls further. Eventually, output returns to potential. Aggregate demand may or may not shift back to the right, depending on the response of monetary policy to the lower inflation rate.
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The median voter
a. is the voter exactly in the middle of the distribution. b. is the voter whose preferred outcome beats any other proposal in a two-way race. c. always has more than half the votes on his side in a two-way race. d. All of the above are correct.
Which of the following occurs when the spending on final goods and services exceeds full-employment GDP?
A. Unemployment. B. Recessionary gap. C. Inflationary gap. D. Inventory accumulation.
Average variable cost for an information product would
A. increase constantly as quantity increases. B. first decrease and then increase as quantity increases. C. remain constant as quantity increases. D. decrease constantly as quantity increases.
Assuming there is no government or foreign sector, the formula for the multiplier is
A. 1 - MPC. B. 1/(1 + MPC). C. 1/(1 - MPC). D. 1/MPC.