The following graph shows the aggregate demand curve.

Shift the aggregate demand curve on the graph to show the impact of a tax cut.

130 O 120 Aggregate Demand 110 100 PRICE LEVEL 90 Aggregate Demand 80 70 10 20 30 40 50 60 OUTPUTSuppose the governments of two different economies, economy A and economy B, implement a permanent tax cut of the same size. Investment spending in economy A is less sensitive to changes in the interest rate than investment spending in economy B. The economies are identical in all other respects. The tax cut will have a smaller impact on aggregate demand in the economy with the