Refer to the information provided in Figure 27.3 below to answer the question(s) that follow. Figure 27.3
-Refer to Figure 27.3. Assume the economy is at Point A. Higher oil prices shift the aggregate supply curve to AS₂. If the government decides to counter the effects of higher oil prices by increasing net taxes, then the price level will be ________ than P₂ and output will be ________ than Y₂.

Question

Refer to the information provided in Figure 27.3 below to answer the question(s) that follow.

Figure 27.3
-Refer to Figure 27.3. Assume the economy is at Point A. Higher oil prices shift the aggregate supply curve to AS₂. If the government decides to counter the effects of higher oil prices by increasing net taxes, then the price level will be ________ than P₂ and output will be ________ than Y₂.

Quizplus · Accepted Answer

Increasing net taxes will reduce aggregate demand, shifting the AD curve to the left from AD1U1B0 to AD2U2B0. The new equilibrium point will be at E2, with a lower price level (P2) and a lower level of output (Y2) than at Point A or Point B.

Refer to the Information Provided in Figure 27