The Sequence of Events by Which Inflation Can Reduce Output

question 77

Multiple Choice

The sequence of events by which inflation can reduce output is:

• A)as prices rise, the quantity of goods and services demanded increases, the firms therefore, produce more output which causes the unemployment to increase.
• B)as prices rise, the quantity of goods and services demanded increases, the firms therefore, produce more output which causes the unemployment to decrease.
• C)as prices rise, the quantity of goods and services demanded falls, the firms therefore, produce less output which causes the unemployment to increase.
• D)as prices rise, the quantity of goods and services demanded falls, the firms therefore, produce less output which causes the unemployment to decrease.

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Definitions:

Tax System

The structured method by which governments impose financial charges on citizens, businesses, and property to fund public expenditures.

Efficient Tax System

A tax system designed to collect government revenue with minimal economic distortion and without imposing excessive administration and compliance costs.

Deadweight Losses

Economic inefficiencies that occur when equilibrium in a market is not achieved, often due to government intervention like taxes or subsidies.

Administrative Burdens

The costs and obstacles associated with compliance to governmental policies and regulations.