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

question 6

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 of a permanent tax reduction? [Assume that potential output remains constant at Y .]

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

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