In an effort to balance the federal budget, an increase in Social Security taxes is passed. What is the most likely effect of this on equilibrium GDP?
a. GDP will increase.
b. GDP will decrease.
c. GDP will not change but prices will rise.
d. GDP will not change but employment will increase.
b
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The aggregate demand curve is downward sloping partly because of the wealth effect
a. True b. False Indicate whether the statement is true or false
Answer the following statement(s) true (T) or false (F)
1. A rise in absolute prices guarantees that relative prices will rise as well. 2. If the relative price of a gallon of water in terms of milk increases from 1 gallon to 1.5 gallons of milk, then the relative price of milk has fallen. 3. If all absolute prices increase by 10%, then the economy's relative prices will remain unchanged. 4. An increase in the price of gasoline relative to telephones will cause inflation. 5. When silk is shipped from China to Atlanta, transportation costs will make the price of high-quality silk relative to low-quality silk higher in Atlanta than in China