In an AD-AS diagram with an upward-sloping AS-curve, if a tax decrease is combined with money expansion,
A)output will remain relatively unaffected but interest rates will decrease
B)output will remain relatively unaffected but interest rates will definitely increase
C)aggregate demand, the price level, and output will all decrease
D)aggregate demand, the price level, and output will all increase
E)the price level will increase but we can't say what will happen to output or interest rates

Question

Quizplus · Accepted Answer

A tax decrease and money expansion both serve to increase aggregate demand. In an AD-AS diagram, this shift in aggregate demand to the right results in a higher price level and increased output.

In an AD-AS Diagram with an Upward-Sloping AS-Curve, If a Tax