If full-employment income and equilibrium income are equal for a country,then a tax cut will result in
A)Excess AD.
B)Output exceeding desired expenditure.
C)Leakages exceeding injections.
D)Undesired inventory accumulation.

Question

Quizplus · Accepted Answer

If full-employment income and equilibrium income are equal, then the economy is already producing at its maximum sustainable level. A tax cut will increase disposable income, leading to an increase in consumption expenditure, which will result in an excess of aggregate demand over aggregate supply (AD>AS). Therefore, the correct choice is A) Excess AD.

If Full-Employment Income and Equilibrium Income Are Equal for a Country,then