Figure 12-4
-Refer to Figure 12-4. If the economy is initially at Y₁, supply-side economists would Jadvocate

Question

Figure 12-4 -Refer to Figure 12-4. If the economy is initially at Y₁, supply-side economists would Jadvocate

Quizplus · Accepted Answer

At Y₁, the economy is producing below its potential GDP (YF). Supply-side economists believe that cutting taxes will increase the incentive for individuals to work and invest, which will lead to an increase in aggregate supply and shift the AS curve to the right. This will increase potential GDP and move the economy closer to YF. Therefore, supply-side economists would advocate for lower taxes to encourage people to work more.

Figure 12-4 -Refer to Figure 12-4. If the Economy Is Initially at Is