Assume the Aggregate Supply Curve Is Horizontal and the Economy

question 43

Multiple Choice

Assume the aggregate supply curve is horizontal and the economy is experiencing a recession.Which of the following is most likely to occur if the Fed pursues expansionary monetary policy?

• A)The equilibrium price level and output will both increase.
• B)The equilibrium price level and output will both decrease.
• C)The equilibrium price level will increase but output will stay the same.
• D)The equilibrium output will increase but the price level will stay the same until full employment is reached.

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Definitions:

Depreciation

The allocation of the cost of a tangible asset over its useful life, reflecting the decrease in value due to use and wear and tear.

Income Tax Rate

The percentage at which an individual or corporation is taxed on their income.

Deferred Tax Asset

A financial statement item that represents an entity's right to reduce future tax payments due to temporary differences or certain carryover losses.

Deferred Tax Liability

A tax obligation recognized in the financial statements representing taxes that are owed but not yet paid.