The Diagram Below Shows an AD/AS Model for a Hypothetical

question 36

Multiple Choice

The diagram below shows an AD/AS model for a hypothetical economy which is initially in a short-run equilibrium at point A. FIGURE 24-6
-Refer to Figure 24-6.The government could close the existing output gap by

• A)increasing the net tax rate.
• B)decreasing the net tax rate.
• C)decreasing government purchases.
• D)decreasing government transfer payments.
• E)implementing a contractionary fiscal policy.

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Definitions:

Interest Expense

The cost incurred by an entity for borrowed funds, typically reported on the income statement.

Accrued Liability

Liabilities recognized on the books before they’re paid for, representing expenses that have been incurred but not yet settled in cash.

Current Liabilities

Short-term financial obligations of a company that are due to be paid within one year, including accounts payable, short-term loans, and accrued expenses.

Long-Term

Refers to assets, investments, or obligations that are expected to last or be in place for more than one year.