Suppose the Government Increases Taxes by More Than Is Necessary

question 116

Multiple Choice

Suppose the government increases taxes by more than is necessary to close an inflationary gap. What is the MOST likely result?

• A) Equilibrium real GDP will be more than anticipated.
• B) The economy will move into a recession.
• C) The economy will generate a larger inflationary gap than anticipated.
• D) This will not have any adverse effects on the economy, since inflation has been abated.

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Definitions:

Magnetic Lines

Imaginary lines used in models and diagrams to represent the strength and direction of a magnetic field around a magnet or an electric current.

Coil

A component that generates a magnetic field when an electric current passes through it, often used in electrical and electronic devices.

Iron Core

An iron core is a ferromagnetic material used in electrical transformers and inductors to concentrate magnetic flux and improve their efficiency.

Electro-magnet

A magnet created by an electric current passing through a coil surrounding a metal core.