Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of supply of X is unitary (coefficient = 1). If the incidence of the tax is such that the producers of X pay $1.90 of the tax and the

The direct effect of an increase in the money supply is

A) people will spend the extra money, causing the aggregate demand curve to shift to the right and prices to rise, and causing the economy to go into recession. B) people will save the money, causing an increase in bank deposits, causing interest rates to fall, and loans to expand. C) people will save more money, causing a decrease in economic activity and a fall in prices. D) people will spend the extra money, causing the aggregate demand curve to shift to the right, creating an increase in economic activity.

Which of the following explains why higher prices in the goods and services market measured by the CPI leads to an upward-sloping aggregate supply curve? a. The higher prices will temporarily improve profit margins because the cost of wages and salaries are fixed in the short run. b. The higher prices will reduce the purchasing power of the fixed quantity of money and, thereby, stimulate

additional output. c. The higher prices will expand the economy's resource base and, thereby, stimulate additional output. d. The higher prices will improve technology and, thereby, stimulate additional output.