Suppose the Economy Begins in a Long- Run Equilibrium with Y

question 19

Multiple Choice

Suppose the economy begins in a long- run equilibrium with Y = Y*. A permanent increase in aggregate demand will have its short- run effect on real GDP reversed in the long run with a shift of _ .

• A)leftward; the aggregate demand curve
• B)rightward; the aggregate demand curve
• C)leftward; the aggregate supply curve
• D)rightward; the aggregate supply curve
• E)rightward; Y*

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Definitions:

Average Tax Rate

The average tax rate is the portion of total income that is paid as taxes, calculated by dividing the total taxes paid by the total income.

State Tax Revenue

The income that a state government receives from taxation of individuals and businesses within its jurisdiction.

Federal Spending

Federal spending refers to the government's expenditure on goods, services, and public projects, financed by taxes and borrowing.

Federal Government

The national government of a federal country, such as the United States, which shares power with state and local governments.