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
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Policy lags tend to make monetary policy ________.
A. more effective in expansions than contractions B. less effective than fiscal policy C. pro-cyclical D. more effective than initially thought
If real GDP exceeds potential GDP, this means that
a. output is below the level produced at the benchmark rate for high employment and high rate of resource utilization. b. this cannot occur; the economy can never be at a point where real GDP exceeds potential GDP. c. cyclical output is above what the economy can sustain in the long-run. d. the economy is expanding.
Which of the following statements about crowding out is false?
A. It is not caused by a budget surplus. B. It is caused by a budget deficit. C. It can completely offset the government's debt D. It affects interest rates and not economic growth.
If the government regulates a monopoly's price below the socially efficient level, then:
A. deadweight loss decreases and there is a surplus of output. B. deadweight loss increases and there is a surplus output. C. deadweight loss increases and there is a shortage of output. D. deadweight loss decreases and there is a shortage of output.