Changes in taxes The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax cut has on the economy. Suppose the governments of two very similar economies, economy B and economy A, implement a permanent tax cut of equal size. The marginal propensity to consume (MPC) in economy B is 0.7 and the MPC in economy A is 0.85. The economies are otherwise completely identical. The tax cut will have a larger impact on aggregate demand in the economy with the (SMALLER MPC or LARGER MPC).
Changes in taxes The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax cut has on the economy. Suppose the governments of two very similar economies, economy B and economy A, implement a permanent tax cut of equal size. The marginal propensity to consume (MPC) in economy B is 0.7 and the MPC in economy A is 0.85. The economies are otherwise completely identical. The tax cut will have a larger impact on aggregate demand in the economy with the (SMALLER MPC or LARGER MPC).
Chapter3: Market Demand And Supply
Section3.A: Consumer Surplus, Proudcer Suplus, And Market Efficency
Problem 11SQ
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Changes in taxes
The following graph plots an aggregate demand curve.
Using the graph, shift the aggregate demand curve to depict the impact that a tax cut has on the economy.
Suppose the governments of two very similar economies, economy B and economy A, implement a permanent tax cut of equal size. The marginal propensity to consume (MPC) in economy B is 0.7 and the MPC in economy A is 0.85. The economies are otherwise completely identical.
The tax cut will have a larger impact on aggregate demand in the economy with the (SMALLER MPC or LARGER MPC).
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