The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax cut has on the economy. PRICE LEVEL 130 120 110 100 90 80 70 0 10 20 30 OUTPUT Aggregate Demand 40 50 60 Aggregate Demand (?) Suppose the governments of two very similar economies, economy B and economy A, implement a permanent tax cut of equal size. Investment spending in economy B is less sensitive to changes in the interest rate than investment spending in economy A. The economies are otherwise completely identical.

Macroeconomics
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ISBN:9781337617390
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter18: Debates In Macroeconomics Over The Rolse And Effects Of Government
Section18.10: Demand-side And Supply-side Views Of The Economy And Government Tools For Changing Real Gdp
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PRICE LEVEL
130
120
110
90
80
70
0
10
20
30
OUTPUT
The tax cut will have a smalle
Aggregate Demand
40
50
60
Aggregate Demand
(?)
Suppose the governments of two very similar economies, economy B and economy A, implement a permanent tax cut of equal size. Investment
spending in economy B is less sensitive to changes in the interest rate than investment spending in economy A. The economies are otherwise
completely identical..
Transcribed Image Text:PRICE LEVEL 130 120 110 90 80 70 0 10 20 30 OUTPUT The tax cut will have a smalle Aggregate Demand 40 50 60 Aggregate Demand (?) Suppose the governments of two very similar economies, economy B and economy A, implement a permanent tax cut of equal size. Investment spending in economy B is less sensitive to changes in the interest rate than investment spending in economy A. The economies are otherwise completely identical..
The following graph plots an aggregate demand curve.
Using the graph, shift the aggregate demand curve to depict the impact that a tax cut has on the economy.
(?)
PRICE LEVEL
130
120
110
100
90
80
70
0
10
20
30
OUTPUT
Aggregate Demand
40
50
60
Aggregate Demand
Suppose the governments of two very similar economies, economy B and economy A, implement a permanent tax cut of equal size. Investment
spending in economy B is less sensitive to changes in the interest rate than investment spending in economy A. The economies are otherwise
completely identical.
Transcribed Image Text:The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax cut has on the economy. (?) PRICE LEVEL 130 120 110 100 90 80 70 0 10 20 30 OUTPUT Aggregate Demand 40 50 60 Aggregate Demand Suppose the governments of two very similar economies, economy B and economy A, implement a permanent tax cut of equal size. Investment spending in economy B is less sensitive to changes in the interest rate than investment spending in economy A. The economies are otherwise completely identical.
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