Starting from long-run equilibrium, a large tax increase will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.

In the short run, an increase in the price level induces firms to expand production because

A) they can increase profits by increasing maintenance costs. B) higher prices allow firms to hire more inputs by offering higher prices for inputs, which increases productivity and profits. C) each firm must keep its production level up to the level of its rivals, and some firms will expand production as the price level increases. D) prices of inputs are held constant, so the higher prices for firms' products imply that it is profitable to expand production.

Refer to Figure 4.7. Which of the following are possible payoffs for this game?

A) 0 points B) +5 points C) -5 points D) All of the above are possible payoffs.