The economy experiences a demand shock shown in the graph. Policy makers may wis

Question

The economy experiences a demand shock shown in the graph. Policy makers may wish to prevent the economy from moving to its new equilibrium because, absent any intervention: prices will remain stable and aggregate output will increase in the short-run. prices will experience inflation and aggregate output will fall in the short-run. prices will experience deflation and aggregate output will fall in the short-run. prices will experience dramatic inflation and output will fall in the long-run. Of the following, which fiscal policy will policy makers most likely enact? reduce government transfers reduce government spending cut taxes increase taxes

Explanation / Answer

1) C

Prices will go lower because of demand shock, the output also falls because there are no takers

2) C

Cut taxes, because this will put more money in consumers pockets which will help to maintain economy and improve demand.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.