I've attached the questions above,
For the first one my answer was B cause the price level is rising as inflation is positive.
The answer turned out to be D, I don't understand why
You are right, unless there is some technicality that I am unaware of the buying power of a unit of currency fell as prices rose (as presumably did wages).
May 26th 2011, 07:49 AM
With respect to the second Q, you're on the right track that it has to do with the noted change in the supply curve.
No graph needed; a quick comparison of the last two columns shows that the S curve shifted north by exactly $3, at least for the relevant range we're given. For example, 230 units were supplied to the market at a price of 14; following the imposition of the tax a selling price of 17 is required to induce that same level of supply. 290 was the willing supply at 15; post-tax it takes a price of 18 to coax that much production. Ditto right up the chart.