If the Economy Is in Macroeconomic Equilibrium with a Vertical

question 73

Multiple Choice

If the economy is in macroeconomic equilibrium with a vertical AS curve, and then aggregate demand increases, we expect the AE function to shift to a

• A)higher level but then return to its original position as the price level rises.
• B)lower level, but then return to its original position as the price level rises.
• C)lower level and stay there.
• D)higher level and stay there.
• E)higher level, but then shift part of the way down to its original position as the price level rises.

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Definitions:

Marginal Tax Bracket

The tax rate that applies to the last dollar of the taxpayer's income, illustrating the percentage of tax applied to your income for each tax bracket in which you qualify.

Net Operating Losses

Losses incurred when a company's operating expenses exceed its revenues, which can often be carried forward or backward to reduce future or past taxable income.

Interest Tax Savings

The reduction in income tax that results from the deductibility of interest payments on certain types of loans, such as mortgages.

Discount Rate

The interest rate used to discount future cash flows of a project or investment to determine its present value.