Suppose the following occurs: (1) Circuit City were very pessimistic about their future sales on their electronic...

Suppose the following occurs: (1) Circuit City were very pessimistic about their future sales on their electronic games so they expected their sales to fall on their electronic games by $100 million because they expected to go out of business due to declining profits so they didn’t invest any money to open up factories and use machines to produce electronic games, (2) and at the same time, the federal government decided to implemented a $2 per unit tax on each electronic game Circuit City can produce. (3) the shift in the AD curve shifts more than the shift in the SRAS curve. Based on this information, in the short run equilibrium Price Level will __________ ; the equilibrium real GDP will _________;and the unemployment rate will __________.(Hint: Draw the initial AD-SRAS curves and then on the same graph draw the new AD-SRAS curves to derive your final answer ).

a.	rise; fall; rise
b.	fall; rise; rise
c.	fall; rise; fall
d.	rise; rise; fall
e.	fall; fall; rise

Expert Solution

Rahul Sunny answered 7 months ago

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