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Author Question: An increase in taxes has the following impact on the budget constraint A) a parallel move down. ... (Read 45 times)

erika

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on: Jun 30, 2018
An increase in taxes has the following impact on the budget constraint
 
  A) a parallel move down.
  B) a parallel move up.
  C) a tilting to the left.
  D) a tilting to the right.

Question 2

Why is there no long-run trade-off between unemployment and inflation?
 
  What will be an ideal response?


Tonyam972

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Reply #1 on: Jun 30, 2018
Answer to Question 1

A

Answer to Question 2

Because when the labor market is so tight as to cause wages and prices to rise, the resulting inflation intensifies the pressure on wages and prices (by reducing the real wage and increasing expected inflation). Since the inflation in no way balances or compensates for the low level of unemployment, the condition of too low unemployment is unsustainable in the long run.


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