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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Tax cuts will likely affect aggregate demand and aggregate supply. Does it matter which is affected more? Explain in terms of the AD–AS framework.

To determine

Explain the influence of tax cuts on aggregate demand (AD) and aggregate supply (AS).

Explanation

A change in tax rates influences the AD and AS on the economy. Hence, a fall in tax rate causes to increase the AD and short-run AS; as a result, the aggregate output will also increase. However, the changes in the price level are determined by the relative magnitude of the changes in AD and SRAS. There are three possible results in price changes...

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