Assume the marginal propensity to consume (MPC) is 0.80 and the government increases taxes by $100 billion. The aggregate demand curve will shift to the:
a. left by $80 billion.
b. right by $200 billion.
c. right by $400 billion.
d. left by $400 billion.
d
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The classical model makes little distinction between the long run and short run because
A) wages and prices adjust so fast that the economy is quickly moving towards the long run. B) the model has not been fully developed yet. C) current changes influence the long run, so it is not possible to plan for the future. D) the classical economists knew that we are always operating in the short run.
Consider an industry that is in long-run equilibrium. An increase in demand leads to an increase in the price of the good. We know that this is
A) a decreasing cost industry. B) a constant cost industry. C) an increasing cost industry. D) not a competitive industry.