Based on the Figure Below

question 33

Multiple Choice

Based on the figure below. Starting from long-run equilibrium at point C, a tax increase that decreases aggregate demand from AD¹ to AD will lead to a short-run equilibrium at point ___ and eventually to a long-run equilibrium at point ____, if left to self-correcting tendencies.

• A) D; B
• B) D; C
• C) B; C
• D) A; B

Recognize how individual spending influences the income of others in the economy.

Understand the concept of public goods and externalities as challenges to market efficiency.

Appreciate the significance of individual choices in the efficient allocation of resources.

Understand the conditions under which markets may fail and the role of policy in addressing these failures.

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Definitions:

Encoding Specificity Principle

The idea that memory is most effective when information that was present at the time of encoding is also present at the time of retrieval.

Cues

Signals or stimuli that trigger a specific response or action, often used in learning and behavioral contexts.

Contexts

The circumstances or settings surrounding a particular event, situation, or concept that help to give it meaning.

Priming

A technique in psychology where exposure to one stimulus influences the response to a subsequent stimulus, without conscious guidance or intention.