Suppose we start with a general equilibrium, and there is a decrease in the effective tax rate on capital. Which of the following statements correctly describes how the economy restores from the short-term equilibrium towards the long-term equilibrium? 1. Short-term output is smaller than full-employment level output and price rises 2. Short-term output is greater than full-employment level output and price rises 3. Short-term output is smaller than full-employment level output and price drops 4. Short-term output is greater than full-employment level output and price drops 5. None of the above

Suppose we start with a general equilibrium, and there is a decrease in the effective tax rate on capital. Which of the following statements correctly describes how the economy restores from the short-term equilibrium towards the long-term equilibrium? 1. Short-term output is smaller than full-employment level output and price rises 2. Short-term output is greater than full-employment level output and price rises 3. Short-term output is smaller than full-employment level output and price drops 4. Short-term output is greater than full-employment level output and price drops 5. None of the above

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter9: Classical Macroeconomics And The Self Regulating Economy

Section: Chapter Questions

Problem 15QP

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