74. In the long run, an increase in aggregate demand from a position of full emp

Question

74. In the long run, an increase in aggregate demand from a position of full employment leads to: O higher output and lower prices. higher prices and the same output. higher prices and higher output. O higher output and higher unemployment 75. The inflation tax refers to the: inflation rate multiplied by the money supply 0 increase in taxes when inflation rises O inflation rate multiplied by the tax rate. O inflation rate when aggregate demand increases 76·The long-run phillips curve is vertical at the NAIRU because 0 an unemployment rate equal to NAIRU will always lead to zero inflation 0 any unemployment rate above the NAIRU will lead to everjaccelerating inflation. O any unemployment rate below the NAIRU will lead to ever accelerating inflation. 0 any unemployment rate below the NAIRU will lead to ever-decelerating inflation Deflations te warceter aloment ate beot can cause budget surpluses. O will not affect output ® can cause increases in output e can cause decressins in output 78. If the economy is in a liquidity trap both monetary and fiscal policies are effectivwe fiscal policy is effective, but monetary policy is n monetary nor fiscal policy is effective onetary policy is effective, but fiscal policy is not 6:46 pM

Explanation / Answer

74. Higher price and higher output.

Increase in AD shifts AD curve rightwards causing increase in both output and price level.

75. increase in taxes when inflation rises

Inflation tax refers to the financial loss which is suffered by holders of cash due to inflation in the economy.

76. any unemployment rate below the NAIRU will lead to ever-accelerating inflation.

78. Fiscal policy is effective but monetary policy is not.

Liquidity trap is a situation where LM curve is horizontal so increase or decrease in AD affects output and thus fiscal policy is effective.

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