Figure 33-2
-Refer to Figure 33-2. A decrease in taxes would move the economy from U to
A)T in the short run and the long run.
B)V in the short run and the long run.
C)T in the short run and S in the long run.
D)V in the short run and U in the long run.

Question

Figure 33-2  ​
-Refer to Figure 33-2. A decrease in taxes would move the economy from U to
A)T in the short run and the long run. 
B)V in the short run and the long run. 
C)T in the short run and S in the long run. 
D)V in the short run and U in the long run.

Quizplus · Accepted Answer

A decrease in taxes increases disposable income, leading to higher consumer spending and aggregate demand. Initially, this moves the economy to a higher output and price level (point T). Over time, as the economy adjusts and potential output remains unchanged, the long-term effect is a return to the natural rate of unemployment but with a higher price level (point S).

Figure 33-2 ​

Figure 33-2