Refer to the figure. Suppose that the economy is currently operating at the intersection of AS and AD 2 , and that the full-employment level of output is Y. Because of the ratchet effect:
A. it is impossible to enact fiscal policy that will both reduce output to Y and reduce demand-
pull inflation.
B. fiscal policy will need to be more contractionary to reduce output to Y than if no ratchet
effect occurred.
C. tax increases will be more effective at reducing demand-pull inflation than cuts in
government spending.
D. contractionary fiscal policy that shifts aggregate demand to AD 1 will cause real GDP to fall below its full-employment level.
D. contractionary fiscal policy that shifts aggregate demand to AD 1 will cause real GDP to fall below its full-employment level.
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In the period 1980-92, United States net national saving fell due to
A) large budget deficits and an increase in private saving. B) small budget deficits and a decrease in private saving. C) small budget deficits and an increase in private saving. D) large budget deficits and a decrease in private saving.
As a group, oligopolists earn the highest profit when they
a. achieve a Nash equilibrium. b. produce a total quantity of output that falls short of the Nash-equilibrium total quantity. c. produce a total quantity of output that exceeds the Nash-equilibrium total quantity. d. charge a price that falls short of the Nash-equilibrium price.