6. Changes in taxes The following graph shows the aggregate demand curv Shift the aggregate demand curve on the graph to show the impact of a tax cut. 130 120 Aggregate Demand 110 100 90 Aggregate Demand 80 70 10 20 30 40 50 60 OUTPUT Suppose the governments of two different economies, economy X and economy Y, implement a permanent tax cut of the same size. The marginal propensity to consume (MPC) in economy X is 0.75 and the MPC in economy Y is 0.8. The economies are identical in all other respects. The tax cut will have a larger impact on aggregate demand in the economy with the PRICE LEVEL

6. Changes in taxes The following graph shows the aggregate demand curv Shift the aggregate demand curve on the graph to show the impact of a tax cut. 130 120 Aggregate Demand 110 100 90 Aggregate Demand 80 70 10 20 30 40 50 60 OUTPUT Suppose the governments of two different economies, economy X and economy Y, implement a permanent tax cut of the same size. The marginal propensity to consume (MPC) in economy X is 0.75 and the MPC in economy Y is 0.8. The economies are identical in all other respects. The tax cut will have a larger impact on aggregate demand in the economy with the PRICE LEVEL

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter8: Application: The Costs Of Taxation

Section: Chapter Questions

Problem 3CQQ

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