The B) horizontal D) downwand sloping el An inease in the effective tax tate on
ID: 1130815 • Letter: T
Question
The B) horizontal D) downwand sloping el An inease in the effective tax tate on capital would cause the IS curve to D) rnals unchanged if tases ase fuly desluctible from income othenwise, sit 10) One cost of a perfectly anticipated inlation is thaet A) transfers wealth from lendders to berrowers 8) trarfers wealth frem borrowers to lenders C)dameges the NIe of prices signals in sheeconomy. D) increass meu costs 11) Which of the follewing would shift the FE line to the sight? A) A decrease in labor supply B) An increase in the future marginal productivity of capital Anadverse supply shock D) An increase in the capital stock 2) Aher a shih in the aggnegate demand curve, which variable adjusts to restore gerenal equilevtum? n eqailerium? A) consumption spendings C) price level B) investment spending D) real intesest rate 13, Adn-inthe money wpply would cease the iS curve to--and the LM orve to 13 A) be unchanged, shilt dewn and to the right 8) shift down and to the left, shift up and to the lett C) be D) shift down and to the left, be unchanged A) Labor B) Goods D) Money 15) The AD, SRAS, and LRAS curves each show a relationship between which two economic1 variables? A) Output and the interest rate 8) The aggregate price level and output D) The aggregate price level and the interest rateExplanation / Answer
8) The long run phillips curve is vertical showing no trade off between inflation and unemployment. Answer is C
9) Increase in the effective tax rate on capital increases desired investment which increases the interest rate. This shifts the IS curve downwards. Thus answer is A.
10) Inflation causes menu cost. It refers to the cost of changing the prices of the products due to inflation in the economy. Thus the answer is D.
11) The FE curve represents the labour market equilibrium. FE shifts right when there is increase in capital stock. Thus answer is D.
12) C. The prices shift to restore general equilibrium. Increase in AD leads to increase in the price level in the economy.
13) Increase in money supply doesnot affect IS curve as it shows the goods market equilibrium and it shifts the LM curve downward to the right. A.
14) FE shows the output where labor market is in equilibrium. A
15) They show a relation between pice level and output. AD shows the negative relation between output and price level while SRAS shows the positive relation between price level and output produced in the economy. B
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