Assume that the economy is initially at long-run equilibrium and aggregate demand declines (due to an increase in taxes). As a result of the tax increase, in the long run, the price level
A. is lower and output is the same as the original long-run equilibrium.
B. and output are lower than in the original long-run equilibrium.
C. is the same and output is lower than in the original long-run equilibrium.
D. and output are higher than in the original long-run equilibrium.
Answer Key: A
Problem Set
- Suppose that the Danish Parliament passes a large tax increase and taxes now equals 400. The aggregate output of the Danish economy is characterized as follows. Consumption: C = 100 + 0.5(Y-T) Investment: I = 300 Government: G = 200 Taxes: T = 400 The tax multiplier for the Danish economy is -1 .
- Suppose that the Danish Parliament passes a large tax increase and taxes now equals 400. The aggregate output of the Danish economy is characterized as follows. Consumption: C = 100 + 0.5(Y-T) Investment: I = 300 Government: G = 200 Taxes: T = 400 The new level of equilibrium output (Y) in Denmark is 800 .
- Suppose the aggregate output of the Danish economy is characterized as follows. Consumption: C = 100 + 0.5(Y-T) Investment: I = 300 Government: G = 200 Taxes: T = 200 Assume that Denmark is a closed economy, with no net exports. Given the information, the marginal propensity to consume (mpc) in Denmark is 0.5 .
- Suppose the aggregate output of the Danish economy is characterized as follows. Consumption: C = 100 + 0.5(Y-T) Investment: I = 300 Government: G = 200 Taxes: T = 200 Assume that Denmark is a closed economy, with no net exports. Given the information, national savings in Denmark is 300 .
- Suppose the aggregate output of the Danish economy is characterized as follows. Consumption: C = 100 + 0.5(Y-T) Investment: I = 300 Government: G = 200 Taxes: T = 200 Assume that Denmark is a closed economy, with no net exports. Given the information, the equilibrium level of consumption (C) in Denmark is 500 .
- Suppose the aggregate output of the Danish economy is characterized as follows. Consumption: C = 100 + 0.5(Y-T) Investment: I = 300 Government: G = 200 Taxes: T = 200 Assume that Denmark is a closed economy, with no net exports. Given the information, the equilibrium level of output in Denmark is 1000 .
- Consider a basket of goods that costs $72.00 in the United States. The same basket of goods costs 224.00 pesos in Mexico. The nominal exchange rate is 14 pesos per dollar. Given the information above, the real exchange rate is 4.50 baskets of Mexican goods per basket of U.S. goods. Suppose that the nominal exchange rate increases from 14.00 pesos per dollar to 28.00 pesos per dollar. If the prices of the basket remain unchanged in both the U.S. and Mexico, the real exchange rate between the U.S. and Mexican baskets of goods will change to 9.00 baskets of Mexican goods per basket of U.S. goods.
- The following table shows the nominal exchange rate, in terms of U.S. dollars per unit of foreign currency. Suppose that an handmade bookcase in Mexico is priced at 2000 Mexican pesos. The approximate U.S. dollar price of the bookcase would be $ 185.20 .
- Suppose the following transactions occur during 2012. 1. Sung, a liquor store owner in the United States, buys 50 bottles of champagne from a French vineyard at a price of $75 per bottle. 2. Autozone, a U.S. company, sells 100 spark plugs to a Korean car company at $5 per spark plug. 3. Tim, a U.S. citizen, pays $670 for a surfboard he orders from Greatwaves (a U.S. company). Based on these transactions, U.S. net exports (NX) in 2012 is $ -3250 .
- Suppose the following transactions occur during 2012. 1. Sung, a liquor store owner in the United States, buys 50 bottles of champagne from a French vineyard at a price of $75 per bottle. 2. Autozone, a U.S. company, sells 100 spark plugs to a Korean car company at $5 per spark plug. 3. Tim, a U.S. citizen, pays $670 for a surfboard he orders from Greatwaves (a U.S. company). Based on these transactions, U.S. exports (EX) in 2012 is $ 500 .
- Suppose the following transactions occur during 2012. 1. Sung, a liquor store owner in the United States, buys 50 bottles of champagne from a French vineyard at a price of $75 per bottle. 2. Autozone, a U.S. company, sells 100 spark plugs to a Korean car company at $5 per spark plug. 3. Tim, a U.S. citizen, pays $670 for a surfboard he orders from Greatwaves (a U.S. company). Based on these transactions, U.S. imports (IM) for 2012 is $ 3750 .
- The nominal interest rate is currently 7% per year and the current expected inflation is 1%. Suppose the Fed unexpectedly increases the growth rate of the money supply, causing the inflation rate to rise unexpectedly from 1% to 3% per year. As a result of this change in inflation, the nominal interest rate will now be 9 %. Assume that the classical dichotomy holds.
- Suppose that the nominal interest rate is 7% per year. If banks and depositors expect an inflation rate of 1% per year, the expected real interest rate is 6 % per year.
- Consider a simple economy that produces only loaves of bread. The table contains information on the economy's output, money supply, velocity, and price level. For example, in 2009, the money supply was $200, the price of a loaf of bread was $5, and the economy produced 400 loaves of bread. Use the information in the table and your previous answers. The money supply grew at a rate of 8.0 % from 2009 to 2010 and the inflation rate (percentage change in prices) grew at a rate of 8.0 % from 2009 to 2010.
- Consider a simple economy that produces only loaves of bread. The table contains information on the economy's output, money supply, velocity, and price level. For example, in 2009, the money supply was $200, the price of a loaf of bread was $5, and the economy produced 400 loaves of bread. Using the information in the table, the nominal GDP in 2009 was $ 2000 , whereas in 2010, nominal GDP was $ 2160 .
- Consider a simple economy that produces only loaves of bread. The table contains information on the economy's output, money supply, velocity, and price level. For example, in 2009, the money supply was $200, the price of a loaf of bread was $5, and the economy produced 400 loaves of bread. Using the information in the table, the price level in 2010 was $ 5.40 .
- Consider a simple economy that produces only loaves of bread. The table contains information on the economy's output, money supply, velocity, and price level. For example, in 2009, the money supply was $200, the price of a loaf of bread was $5, and the economy produced 400 loaves of bread. Using the information in the table, the velocity of money in 2009 was 10 .
- If a 40% change in price results in a 25% change in quantity supplied, then the price elasticity of supply is
- Data recently collected from Orlando reveals that when the price of a Universal Studios ticket increased by 25%, the quantity of Universal Studios tickets demanded fell by 10%, and the quantity of local area car rentals fell by 30%.
- Data collected in San Francisco reveals that a 5% decrease in income leads to the following changes: (1) a 4% increase in the quantity demanded of Muni bus rides. (2) a 3% decrease in the quantity demanded of marijuana. (3) a 13% decrease in the quantity demanded of San Francisco Giants tickets. The income elasticity of San Francisco Giants tickets is _______.
- Suppose that Excalibur Hotel and Casino is currently charging $150 per night. If the price of a room at the Excalibur Hotel and Casino decreases to $135, the quantity of rooms demanded at the Luxor Hotel and Casino would fall from 300 to 270 rooms per night. The cross-price elasticity of demand between these two goods is equal 1 .
- Hotels in Las Vegas draw a majority of their customers from residents of Southern California. The average household income in Los Angeles is currently $50,000 per year. At this level of income, 300 rooms are demanded per night at the Luxor Hotel and Casino. If the average household income in Los Angeles were to increase to $55,000 per year, the quantity of rooms demanded at the Luxor would increase to 340 per night. Given this information, the income elasticity of demand would be 1.32 .
- Britney operates a food truck in Merced. She notices that when she lowered the price of her taco, there was a decrease in total revenue. Britney can conclude that demand for her tacos must be ________.
- A vertical demand curve is __________.
- The following graph shows two points (X and Y) on a demand curve for dinghies. According to the midpoint method, the price elasticity of demand for dinghies between X and Y is approximately ______, which suggests that the demand for dinghies is _______ between X and Y.