Question

Describe and explain the short-run and long-run effects of an increase in taxes on a closed...

Describe and explain the short-run and long-run effects of an increase in taxes on a closed economy in the short run.

1. What is the effect of an exogenous increase in investment in the Aggregate Demand/Aggregate Supply (AD/AS) diagram?

2. Consumption

3. Real GDP

4. Price level

5. Unemployment

6. Interest rate

7. Investment

Homework Answers

Answer #1

The increase in tax rates will lead to
the decreased AD in the
economy. Hence as a result the
AD will shift leftward.
As a result of the increased tax rates, there will be lesser disposable
money with people, hence
their consumption will drop.
The leftward shift of AD will
lead to the fall in the price level
and real GDP causing the
creation of recessinary gap in
the economy.
At this level, the level of
unemployment rises as the
economy is performing under
the potential level of output.
The intetest rates fall in the
economy .Investment
also fall because people have lesser money, hence
investments decrease.

But in the long run , the consumption and investment will rise due to lesser interest rates. Hence AD will recover back to its original.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Describe and explain the short-run and long-run effects of an exogenous increase in investment on a...
Describe and explain the short-run and long-run effects of an exogenous increase in investment on a closed economy in the short run. 1. What is the effect of an exogenous increase in investment in the Aggregate Demand/Aggregate Supply (AD/AS) diagram? 2. Consumption 3. Real GDP 4. Price level 5. Unemployment 6. Interest rate 7. Investment
Describe and explain the short-run and long-run effects of an exogenous decrease in money demand on...
Describe and explain the short-run and long-run effects of an exogenous decrease in money demand on a closed economy. 1. What is the effect of an exogenous decrease in money demand in the Aggregate Demand/Aggregate Supply (AD/AS) diagram? 2. Consumption 3. Real GDP 4. Price level 5. Unemployment 6. Interest rate 7. Investment
Suppose the economy is in long run equilibrium, with real GDP at $19 trillion and the...
Suppose the economy is in long run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. now assume that the central bank unexpectedly decreases the money supply by 6%. A. Illustrate the short run effects on the macroeconomy by using the aggregate demand-aggregate supply model. Be sure to indicate the direction of change in real GDP, the price level and the unemployment rate B. Illustrate the long run effects on the macroeconomy by using the aggregate...
32.   The economy is experiencing substantial short-run unemployment.  The long-run aggregate supply curve is ___________.  In the long run,...
32.   The economy is experiencing substantial short-run unemployment.  The long-run aggregate supply curve is ___________.  In the long run, there will be _________ in the aggregate price level. A.   horizontal, an increase B.    horizontal, a decrease C.    vertical, an increase D.   vertical, a decrease 33.   The less sensitive households are to changes in interest rates, ______________, for a given increase in the aggregate price level. A.   the more the aggregate demand curve will shift to the left B.    the less the aggregate demand curve will shift to the left C.    the...
Describe whether the following changes cause the aggregate demand curve to increase (shift right), decrease (shift...
Describe whether the following changes cause the aggregate demand curve to increase (shift right), decrease (shift left), or neither. (a) The price level increases. (b) Investment decreases. (c) Imports decrease and exports increase. (d) The price level decreases. (e) Consumption increases. (f) Government purchases decrease. Describe whether the following changes cause the long-run aggregate supply curve to increase (shift right), decrease (shift left), or neither. (a) The price level increases. (b) The stock of capital in the economy increases. (c)...
Suppose the economy is in long-run equilibrium, with real GDP at $16 trillion and the unemployment...
Suppose the economy is in long-run equilibrium, with real GDP at $16 trillion and the unemployment rate at 5%. Now assume that the central bank increases the money supply by 6%. a. Illustrate the short-run effects on the macro-economy by using the aggregate supply-aggregate demand model. Be sure to indicate the direction of change in Real GDP, the Price Level, and the Unemployment Rate. Label all curves and axis for full credit.
The aggregate-demand (AD), short-run aggregate supply (AS), and long-run aggregate-supply (ASLR) schedules for a given economy...
The aggregate-demand (AD), short-run aggregate supply (AS), and long-run aggregate-supply (ASLR) schedules for a given economy are as follows. The schedules show the GDP price index (P) versus real GDP (Q), with Q measured in trillions of constant (real) dollars. Note that ASLR is potential output (Qf). P AD AS ASLR 60 7 1 3 90 6 2 3 120 5 3 3 140 4 4 3 160 3 5 3 170 2 6 3 1. Graph the AD, AS,...
1- The long-run aggregate supply curve assumes that the unemployment rate is more than 9 percent....
1- The long-run aggregate supply curve assumes that the unemployment rate is more than 9 percent. only laborers are fully employed. all factors of production are fully employed. there is no government purchasing of goods and services. 2-The natural rate of unemployment will help determine the level of economic growth in the economy. the position of the long-run aggregate supply curve. low levels of inflation. the open economy effect. 3-The vertical axis for an aggregate demand curve measures real income....
11.   Demand-pull inflation occurs when the aggregate __________ curve shifts _______. A.   demand, right B.    demand, left C.    supply, right...
11.   Demand-pull inflation occurs when the aggregate __________ curve shifts _______. A.   demand, right B.    demand, left C.    supply, right D.   supply, left 12.   When the aggregate price level decreases, the resulting decrease in interest rates will most likely ___________ investment and _____________ consumption. A.   increase, increase B.    increase, decrease C.    decrease, increase D.   decrease, decrease 13.   The economy is operating at full capacity.  The long-run aggregate supply curve is __________.  In the long run, an increase in the aggregate price level will __________ output. A.   horizontal, increase B.    horizontal, not change C.    vertical, increase D.   vertical,...
When an economy operates at its long-run potential output level, a. aggregate demand will exceed aggregate...
When an economy operates at its long-run potential output level, a. aggregate demand will exceed aggregate supply in the goods and services market. b. unemployment will decline to an abnormally low rate that cannot be sustained in the long run. c. the actual rate of unemployment will exceed the natural rate of unemployment. d. the natural and actual rates of unemployment will be equal. If an economy is operating in the range where its aggregate supply curve is vertical, a....