Use the Following to Answer Questions

question 138

Multiple Choice

Use the following to answer questions:
-(Figure: AD-AS) Refer to Figure: AD-AS. Suppose that the economy starts at E₁ and moves to E₂, where AD₂ intersects SRAS_1. SRAS₁ will shift to SRAS₂ because:

• A) real wages rise in the long run.
• B) nominal wages rise in the long run.
• C) the real money supply rises in the long run.
• D) aggregate real output rises in the long run.

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Definitions:

Marginal Tax Rate

The percentage at which the next dollar earned of taxable income is subjected to tax.

Average Tax Rate

The total amount of taxes paid by an individual or business divided by the taxable income, reflecting the proportion of income paid in taxes.

Flypaper Theory

A concept suggesting that government grants and subsidies stick where they first land, meaning they benefit the entity they're directly given to rather than being efficiently redistributed.

Tax Incidence

The analysis of the effect of a particular tax on the distribution of economic welfare, essentially focusing on who ultimately bears the cost of a tax.