Using the Aggregate Demand-Aggregate Supply Model, Predict What Happens in the Short

question 76

Multiple Choice

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the federal government lowers the capital gains tax to stimulate investment.

• A) The aggregate demand curve shifts left; the aggregate supply curve is not affected; price level and real GDP decrease.
• B) The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase.
• C) The aggregate supply curve shifts left; the aggregate demand curve is not affected; price level increases; real GDP decreases.
• D) The aggregate supply curve shifts right; the aggregate demand curve is not affected; price level decreases; real GDP increases.

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Definitions:

Perfectly Elastic

Describes a situation in which the quantity demanded or supplied reacts to the smallest change in price with an infinite amount of change in quantity.

Excise Tax

A targeted tax levied on the sale of specific goods and services, such as alcohol and tobacco, often used to discourage consumption.

Equilibrium Output

The level of production in a market where the quantity supplied equals the quantity demanded, leading to a state of balance without excess supply or demand.

Migraine Headaches

A type of headache characterized by severe pain, often accompanied by nausea, vomiting, and sensitivity to light and sound.