Suppose the government imposed a binding price ceiling in the market for housing. Other things equal, the effect of this price ceiling will be to:
A. allow fewer low-income people to buy water.
B. give an incentive for buyers and sellers to of houses to make illegal transactions.
C. decrease the quantity of houses for sale in the market.
D. all of the choices are correct.
Answer: D
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The AD curve slopes
A) downward due to the wealth and price effects. B) downward due to the wealth and substitution effects. C) upward due to the price and substitution effects. D) upward due to the wealth and substitution effects.
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.
A. recessionary; lower; potential B. expansionary; lower; potential C. expansionary; higher; potential D. recessionary; lower; lower