Suppose a tax cut that had been anticipated by households and businesses doesn't happen. Describe a new Keynesian analysis of the consequences of this "event."
What will be an ideal response?
The non-occurrence of an anticipated tax cut has the same effect as an unanticipated tax increase: the aggregate demand curve shifts to the left. As output falls below potential and inflation falls, the decrease in expected inflation increases aggregate supply, so output begins to recover and inflation falls further. Eventually, output returns to potential. Aggregate demand may or may not shift back to the right, depending on the response of monetary policy to the lower inflation rate.
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If a 1 percent increase in price causes a 2 percent increase in quantity supplied, then supply is
A) elastic. B) inelastic. C) unit elastic. D) infinite.
The long run demand curve for wheat is likely to be: a. more elastic than the short run demand curve for wheat. b. more inelastic the short run demand curve for wheat. c. the same as the short run demand curve for wheat
d. more inelastic than the short run supply of wheat.