Fiscal Policy Analysis -On the Graph Above, Suppose the Economy Is at Point

question 23

Multiple Choice

Fiscal Policy Analysis

-On the graph above, suppose the economy is at point 1. Which sequence of points best illustrates the short-run and then long-run impacts if taxes are reduced for one year, then returned to the original level? [Assume that potential output remains constant at Y .]

• A) 7, 2, 5
• B) 2, 4, 1
• C) 2, 7, 6
• D) 7, 8, 1

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Definitions:

Short Run

A period in economics during which at least one input (like capital) is fixed, focusing on immediate effects rather than long-term outcomes.

Profit-Maximizing Price

The price level at which a firm can achieve the maximum possible profit, calculated by equating marginal cost with marginal revenue.

Total Revenue

The cumulative revenue a company collects from the sale of goods or offering of services during a given time frame.

Gas Station

A retail establishment that sells fuel and engine lubricants for motor vehicles.