The government raises gasoline taxes as part of the price of gasoline and receives more tax revenues. However, after five years, the government discovers that revenues from the gasoline tax have declined. This situation would be most likely to occur if
A) the long-run elasticity of supply was much greater than the long-run elasticity of demand.
B) the demand for gasoline was inelastic in the short run, but elastic in the long run.
C) the long-run elasticity of demand was greater than the long-run elasticity of supply.
D) the demand for gasoline was perfectly inelastic in both the short run and the long run.
Answer: B
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If the nature of production is such that adjustments take longer, then supply is likely to be _____________
Fill in the blank(s) with the appropriate word(s).
Proper inflation accounting is necessary to measure the size of the real deficit because
A. as a lender, the government gains from inflation. B. otherwise, the deficit is understated in inflationary times. C. the government is a borrower that pays back dollars of less real value in inflationary times. D. interest payments tend to fall in inflationary times.