If an increase in net taxes in the United States resulted in a very large decrea
ID: 1162523 • Letter: I
Question
If an increase in net taxes in the United States resulted in a very large decrease in aggregate output and a very small decrease in the price level, then the U.S. economy must have been
on the very steep part of the short-run aggregate supply curve.
on the very flat part of the short-run aggregate supply curve.
on the very steep part of the short-run aggregate demand curve.
on the very flat part of the short-run aggregate demand curve.
A.on the very steep part of the short-run aggregate supply curve.
B.on the very flat part of the short-run aggregate supply curve.
C.on the very steep part of the short-run aggregate demand curve.
D.on the very flat part of the short-run aggregate demand curve.
Explanation / Answer
The US economy must be on a very flat part of the aggregate supply curve. when the aggregate supply curve is flat a very small change in the price cause a large change in the output. Just opposite to this, when the supply curve is flat the large change in the price will cause a very small change in the output.
The answer is "B".