the council of elrond has decided to increase taxes, and the central bank of elrond has decided to conduct…
the council of elrond has decided to increase taxes, and the central bank of elrond has decided to conduct open market purchases of financial assets. assuming that wages are sticky, which of the following best describes the impact of these actions on real output and the price level? choose 1 answer: a impact on real output is indeterminate; price level decreases b impact on real output indeterminate; impact on the price level indeterminate c real output will decrease; the price level will decrease d real output decreases; impact on the price level is indeterminate e real output increases; the price level increases
Answer
Brief Explanations:
Increasing taxes is a contractionary fiscal policy which tends to reduce aggregate demand and real - output. Open - market purchases of financial assets by the central bank is an expansionary monetary policy which increases the money supply and stimulates aggregate demand. With sticky wages, the net effect on real output depends on the relative strength of the fiscal and monetary policies, making it indeterminate. The impact on the price level is also indeterminate as the contractionary fiscal policy pushes prices down and the expansionary monetary policy pushes prices up.
Answer:
B. Impact on real output indeterminate; impact on the price level indeterminate