Question

The government decides to cut income taxes to combat a potential recession. If the economy was...

The government decides to cut income taxes to combat a potential recession. If the economy was initially in long-run equilibrium, this reduction in taxes will lead the price level to____ in the short run and ___ in the long run. a.) fall; fall further b.) fall; rise back towards its initial position c.) rise; rise further d.) rise; fall back towards its initial position. Please explain your reasoning.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The economy initially starts in LRE. Canada enters a recession. Suppose the US government is influenced...
The economy initially starts in LRE. Canada enters a recession. Suppose the US government is influenced by Keyensian economic theory so it likes to actively manage business cycles. It decides to do fiscal policy. What could the US government could do which would be appropriate fiscal policy? ["Lower taxes and decrease government spending", "Raise taxes and decrease government spending", "Appreciate the currency", "Raise taxes and lower investment", "Lower taxes and increase government spending"]       Given that the US government...
5- If an economy is in short-run equilibrium where the level of real GDP is less...
5- If an economy is in short-run equilibrium where the level of real GDP is less than potential output, then, in the long run, one will find: A-Nominal wages will rise and the SRAS curve will shift left bringing the economy back to its potential real GDP. B-Nominal wages will rise shifting the AD curve to the right and restoring real GDP to its potential level C-Nominal wages will fall and the SRAS curve will shift right bringing the economy...
24)The process of an economy adjusting from a recession back to potential GDP in the long...
24)The process of an economy adjusting from a recession back to potential GDP in the long run without any government intervention is possible because Select one: a. In the long run, wages and prices are completely flexible as per the classical model b. In the long run, wages and prices are completely flexible as per the Keynesian model c. In the long run we are all dead d. Prices and wages are sticky in the short run as per what...
1. A cut in government spending, a decrease in income abroad, an increase in taxes, or...
1. A cut in government spending, a decrease in income abroad, an increase in taxes, or an expectation that future consumer income will fall will all cause aggregate: A) demand to shift rightward. B)demand to shift leftward. C)supply to shift rightward. D)supply to shift leftward. E) supply and aggregate demand to both shift equally inward. 2. A decrease in aggregate supply can result in: A) Unemployment B) demand- pull inflation C) prosperity D) cost- push inflation E) a recession 3.A...
Assume the economy is initially in long-run equilibrium. Explain briefly how short-run stagflation (recession combined high...
Assume the economy is initially in long-run equilibrium. Explain briefly how short-run stagflation (recession combined high inflation) results from an adverse supply shock. (Hint: Use AD-AS diagrams to show what happens to P and Y.) Suppose that stagflation occurs. To help economy go back to its full-employment output, how should the government use her budgetary tool that is based on corporate tax? Briefly explain your answer.
1. Suppose that the economy begins at potential output. Now, there is a tax cut. a....
1. Suppose that the economy begins at potential output. Now, there is a tax cut. a. Use the Keynesian Cross diagram to show the effect, if any, of the tax cut on output in the short run. b. Explain how the economy returns to potential output. Be sure to describe what happens to inflation and the real interest rate as the economy returns to potential. c. What effect, if any, will the tax cut have on the long-run real interest...
Suppose in an economy which is producing at its potential output, the central bank decides to...
Suppose in an economy which is producing at its potential output, the central bank decides to implement an expansionary monetary policy. Using the AD-AS model, explain the effect that this policy will have in the short run, and in the long run. Illustrate your answer with a diagram.
When the economy is producing at an output level below the potential output, the unemployment rate...
When the economy is producing at an output level below the potential output, the unemployment rate is above the natural rate of unemployment. the short-run aggregate supply curve will slowly shift to the left when wages start to adjust. the intersection of the short-run aggregate supply curve and the aggregate demand curve is to the right of the long-run aggregate supply curve. the economy might be at the long-run equilibrium. Which of the following is not a determinant of the...
2.    We now want to study the same fiscal policy if the economy starts at full...
2.    We now want to study the same fiscal policy if the economy starts at full employment. (i)            Draw the aggregate demand curve and the short and long run supply curves for a country in a new diagram. Assume that the country starts at full employment. (ii)           The government decides to reduce taxes to households. Illustrate in your diagram the effect on the economy of lower taxes by shifting the curve(s). Mark the new short-run equilibrium after lower taxes P2,...
A perfectly competitive industry with constant costs initially operates in long-run equilibrium. When demand increases: A....
A perfectly competitive industry with constant costs initially operates in long-run equilibrium. When demand increases: A. in the long and short runs, prices and profits will be lower relative to what they were before the demand increase. B. in the short run, prices and profits will be higher, but in the long run, price will fall back to its original level and firms will again earn zero economic profit. C. in the short run, prices and profits will fall, but...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT