Question

In: Economics

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in taxes, then in the short run, real GDP will

 

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in taxes, then in the short run, real GDP will 
fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected. 
rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.
fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower. 
rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected.

Solutions

Expert Solution

Option C - Fall and the price level might fall, rise, or stay the same. In the long-run price level might rise, fall, or stay the same but real GDP will be lower.

  • We have given the economy in long-run equilibrium.
  • given that if there is a sharp increase in the minimum wage and tax rise.
  • In short-run and long-run, the price level might rise, fall or remain the same.
  • But since there is an increase in minimum wage and tax rates, the real GDP in the short-run will be lower

 

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

Suppose that the economy is at long-run equilibrium. If there is a sharp decline in the...
Suppose that the economy is at long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, then in the short run a. real GDP will rise and the price level might rise, fall, or stay the same. b. real GDP will fall and the price level might rise, fall, or stay the same. c. the price level will rise, and real GDP might rise, fall, or stay the...
.Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment...
.Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases the money supply by 6%. Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases the money supply by 6%. a. Illustrate the short-run effects on the macroeconomy by using the aggregate demand / aggregate supply...
.Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment...
.Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases the money supply by 6%. Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases the money supply by 6%. a. Illustrate the short-run effects on the macroeconomy by using the aggregate demand / aggregate supply...
4) Suppose the economy is in long-run equilibrium, with real GDP at $16 trillion and the...
4) Suppose the economy is in long-run equilibrium, with real GDP at $16 trillion and the unemployment rate at 5%, Now assume that the central bank unexpectedly decreases the money supply by 6%. a. Illustrate the short run effects on the macro-economy by using the aggregate supply-aggregate demand model. Be sure to indicate the direction of change in Real GDP, the Price Level and the Unemployment Rate. Label all curves and axis for full credit. 5) Suppose the economy is...
Suppose the economy is in long-run equilibrium. In a short span of time, there is a...
Suppose the economy is in long-run equilibrium. In a short span of time, there is a sharp decline in the stock market, a tax cut, an increase in the money supply, and a decline in the value of the dollar. In the short run, what would we expect to happen?
12. Suppose the economy is in long-run equilibrium. If there is an increase in consumer spending...
12. Suppose the economy is in long-run equilibrium. If there is an increase in consumer spending due to a tax rebate at the same time that a natural disaster adversely affects the availability of production inputs within the country, then in the short-run we would expect A. the price level will rise, and real GDP might rise, fall, or stay the same. B. the price level will fall, and real GDP might rise, fall, or stay the same. C. real...
Suppose the economy is in long-run equilibrium.
Scenario 1 - Pessimism Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. Scenario 1 - Pessimism. Which curve shifts and in which direction? aggregate demand shifts right aggregate demand shifts left aggregate supply shifts right. aggregate supply shifts left.
Suppose the U.S. economy was in both short-run and long-run equilibrium, until the economy experienced inflation....
Suppose the U.S. economy was in both short-run and long-run equilibrium, until the economy experienced inflation. a. Which policy would be consistent with the goals of monetary policy during this time? The Fed repos $25 billion worth of Treasury bonds to non-bank financial firms. The Fed reduces the discount rate from 7 percent to 5 percent. The Fed reduces the reserve ratio from 20 percent to 15 percent. The Fed sells securities worth $100 million to financial institutions.
Suppose the economy is operating at both short-run and long-run equilibrium. a) Draw an initial graph...
Suppose the economy is operating at both short-run and long-run equilibrium. a) Draw an initial graph showcasing this information. Label the initial equilibrium (A).
Suppose the economy is currently in short run macroeconomic equilibrium, with actual GDP smaller than potential...
Suppose the economy is currently in short run macroeconomic equilibrium, with actual GDP smaller than potential GDP. (a) Depict this situation using AD-AS, being sure to label all curves and axes. (b) Give an example of an automatic stabilizer, and explain how it could close the gap this economy has. (c) What open market operation could the Federal Reserve carry out, to close this gap? Show graphically the effect it would have.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT