A Tax Increase That Affects Both Aggregate Demand and Potential

question 71

Multiple Choice

A tax increase that affects both aggregate demand and potential output is predicted to _____ the long-run equilibrium level of output, while inflation _____.

• A)decrease; increases
• B)increase; decreases
• C)decrease; may increase, decrease, or remain unchanged
• D)decrease; decrease

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Definitions:

Substantially Impaired

A term used to describe a significant reduction in the ability or function of something or someone.

Novation

The act of replacing an existing contract with a new one, where a different party assumes the rights and obligations of the original party.

Accord

An agreement in contract law where one party agrees to accept something different (often less) than what was initially agreed upon as satisfactory performance.

Satisfaction

The fulfilment of a requirement, obligation, or the to fulfillment of a condition stipulated in a contract.