Under a ________ income tax system, as income grows, the average personal income tax liability of individuals and families increases.
Answer(s): E
With rising incomes, more people find themselves above the "no tax due" cutoff. Others are pushed into a higher tax bracket. Therefore, during an economic expansion, revenue from the personal income tax increases more rapidly than income.
The inflation rate in an economy currently in equilibrium jumps up unexpectedly. According to the Adaptive Expectations hypothesis, unemployment will in the short run.
Answer(s): B
According to the Adaptive Expectations hypothesis, people consider the recent past as the best predictor of the immediate future. Therefore, when the inflation rate jumps up unexpectedly, workers using adaptive expectations will lag behind in their estimates and underestimate the future inflation. Hence, they will get into wage contracts that will under-compensate for the higher inflation. Over a short run, this will lead to improved profit margins for businesses, who will expand the output by utilizing more resources. In the short run, unemployment rate will fall.Over the long run, this mistake gets corrected, wages increase and unemployment rate falls back to the natural rate.
The Keynesian range (the horizontal range) of a short-run aggregate supply curve illustrates that changes in aggregate demand exert little impact on prices and a great deal of impact on output when
Answer(s): D
Below the full employment capacity of the economy, increases in aggregate supply have little effect on the price level. This is the result of the Keynesian assumption that at less than full employment output levels, prices and wages are fixed since they are inflexible in a downward direction.
Which of the following will most likely increase aggregate supply in the long run?
Answer(s): A
Improvements in technology can cause the aggregate supply curve to permanently shift to the right. This is because such advances make it possible to produce and sustain a larger rate of output from a specific resource supply.
Cyclical unemployment is a result of
Cyclical unemployment occurs due to recessionary business conditions and inadequate aggregate demand for labor.
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