5. Suppose the economy is initially in long-run equilibrium and the government reduces the marginal tax rate.
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5. Suppose the economy is initially in long-run equilibrium and the government reduces the marginal tax rate. LO 12.3 MEDIUM a)Explain what will happen to output and inflation in both the short run and the long run if the effects of the tax cuts are stronger on aggregate demand than on aggregate supply.
b)How would your conclusions in part (a) be affected if the effects of the tax cuts are stronger on aggregate supply than on aggregate demand? Explain.
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