A Flatter IS Curve Implies That the Aggregate Demand Curve

question 126

Multiple Choice

A flatter IS curve implies that the aggregate demand curve will be

• A)steeper and the k1 multiplier becomes larger.
• B)flatter and the k1 multiplier becomes smaller.
• C)unaffected and the k1 multiplier becomes smaller.
• D)vertical and the k1 multiplier becomes smaller.

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Definitions:

Equilibrium

A state in which market supply and demand balance each other, and as a result, prices become stable.

Quantity Demanded

The total amount of a good or service that consumers are willing to buy at a given price over a specified period.

Marginal Tax Rates

The rate at which an additional dollar of income is taxed, showing the percentage of tax applied to your income for each tax bracket you pass through.

Laffer Curve

A theoretical representation of the relationship between tax rates and government revenue, suggesting there is an optimal tax rate that maximizes revenue.