Question

Suppose the economy has a recessionary gap. If supply-side effects are very strong in relation to the demand-side effects,

Accepted Answer

A)  the impact of tax cuts will be strengthened because the increase in disposable income induces consumption, which in turn encourages firms to expand production, thereby shifting the short-run aggregate supply curve to the right. 
B)  the impact of tax cuts will be strengthened because in addition increasing aggregate demand, long-run and short-run aggregate supply will also increase. 
C)  the impact of increased transfer payments to help re-tool the unemployed with new skills will be strengthened, thereby shifting the aggregate demand curve further to the right. 
D)  the impact of increased transfer payments to help re-tool the unemployed with new skills will be strengthened, thereby shifting the short-run aggregate supply curve to the right. 
A)  the impact of tax cuts will be strengthened because the increase in disposable income induces consumption, which in turn encourages firms to expand production, thereby shifting the short-run aggregate supply curve to the right. 
B)  the impact of tax cuts will be strengthened because in addition increasing aggregate demand, long-run and short-run aggregate supply will also increase. 
C)  the impact of increased transfer payments to help re-tool the unemployed with new skills will be strengthened, thereby shifting the aggregate demand curve further to the right. 
D)  the impact of increased transfer payments to help re-tool the unemployed with new skills will be strengthened, thereby shifting the short-run aggregate supply curve to the right.

Suppose the economy has a recessionary gap. If supply-side effects are very strong in relation to the demand-side effects,

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters

Exam 12: Government and Fiscal Policy

Suppose the economy has a recessionary gap. If supply-side effects are very strong in relation to the demand-side effects,

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters