Question 2 Consider the short run. An investment tax credit is applied to encour
ID: 1225014 • Letter: Q
Question
Question 2
Consider the short run. An investment tax credit is applied to encourage business spending. The result will be ____________ in the price level and ________________ in output.
an increase; a decrease
no change; an increase
none of the listed options
an increase; no change
an increase; an increase
Question 4
In the short run, policy is enacted via a tax increase. The effect on the AD-AS graph would be ____________ in prices and _______________ in output.
a decrease; no change
an increase; a decrease
a decrease; a decrease
a decrease; an increase
none of the listed options
Question 5
In the short run, the Fed (Federal Reserve) buys $100,000 in US government bonds from a bank for policy purposes. When we graph this on the AD-AS framework we see it results in ____________ in prices and _______________ in output.
an increase; a decrease
a decrease; a decrease
none of the listed options
an increase; an increase
a decrease; an increase
Question 6
Tight (contractionary) fiscal policy will, in the long run, cause _____________ in the price level and ______________ in output.
none of the listed options
a decrease; a decrease
a decrease; no change
a decrease; an increase
an increase; a decrease
Question
Consider again the scenario from the previous question. The overall long-run effect of this scenario would be
inflation and a decrease in the natural rate of output
deflation and no change in the natural rate of output
inflation and no change in the natural rate of output
deflation and a decrease in the natural rate of output
none of the listed options
an increase; a decrease
no change; an increase
Explanation / Answer
Answer 2 : To encourage the business spending, government has to decrease tax, which will resutl into Less Cost and so will be LESS PRICE.
As per Demand Rule, whenver price is low, Demand is higher. And so to quench higher demand, Output will increase.
Answer 4: IF Tax increase, then overall cost of goods will increase and so the price. So Demand will be low, As cost increase- overall profit will decrease and demand will also decrease. So Supply will be also low.
SO Decrease in Demand and Decrease in Output
Answer 5:
As FED is injecting money by buying bonds. Hence money supply will increase. This will result into increase into inflation. as people will have less value for money. So Price will increase
As there is more money in market, and value for money decline, interest rate will also decrease. So overall cost will decrease. Hence on same level, now more output can be produced. Hence Output will increase.
Answer 6:
As there is shortage of money in market, price will not increase. So in long run there will be Decrease in Price. As shortage of money, demand will be also low, and Decrease in Output too.
Answer 7: As shortage of money, in long run demand will be getting lesser and lessser. Hence there will be Deflation. And decrease in natural rate of output, as rete are declining and so they can not recover even cost of interest too.
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