Figure 12-4
-Refer to Figure 12-4. If the economy's long-run aggregate supply curve is LRAS₁, and if the
Economy is in equilibrium at Y₁, supply-side economists would advocate

Question

Figure 12-4 -Refer to Figure 12-4. If the economy's long-run aggregate supply curve is LRAS₁, and if the Economy is in equilibrium at Y₁, supply-side economists would advocate

Quizplus · Accepted Answer

Supply-side economists focus on policies that can shift the economy's LRAS curve to the right, thus increasing potential output and promoting economic growth. Tax cuts can stimulate investment and work effort, leading to increases in productivity and technological advances that shift the LRAS and SRAS curves to the right. By reducing tax rates, firms have more funds available to invest in new capital and technology, leading to higher productivity and output in the long run. Hence, tax cuts can move the economy from the initial equilibrium point Y₁ to a new equilibrium point at Y₂.

Figure 12-4 -Refer to Figure 12-4. If the Economy's Long-Run Aggregate Supply