The figures below show the AS-AD model, depicting GDP on the horizontal axis and the price level on the vertical axis. The AS (aggregate supply) curve shows firms' willingness to produce final goods and services; the AD (aggregate demand) curve shows economy-wide demand for final goods and services.

(a) Explain why the AD curve is decreasing.

(b) Determine the effect of a decrease in personal income taxes on the GDP and the price level for situation A and B. What are the differences between the effects in situation A and B?

(c) How would you model long-term economic growth in the AS-AD model? Stated differently, how does the development of more productive technologies affect the above AS-AD figure?

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