7. Supply-side effects Consider a fictional economy that Is operating at Its long-run equilibrium. The following graph shows the aggregate demand curve (AD) and short-run aggregate supply curve (SRAS) for the economy. The long-run aggregate supply curve (LRAS) Is represented by a vertical line at $6 trillion. The economy 's Initially producing at potential output. Suppose that fiscal authorities decide to decrease marginal tax rates. Assume that this change In marginal tax rates is perceived as a long-term change. Shift the appropriate curves to Illustrate the supply-side view of the fiscal policy effect on output and the price level. 120 LRAS SRAS 100 AD 80 SRAS PRICE LEVEL LRAS 20 10 QUANTITY OF OUTPUT (Trillions of dollars) True or False: Supply-side economics is a long-run, growth-oriented strategy False True