During the early years of the Reagan administration, some of the presidential advisors argued that tax cuts could reduce inflation because they would give people an incentive to produce more. Critics of this argument believed that tax cuts would increase inflation, not reduce it. The critics were arguing that tax cuts move the:
A)aggregate demand curve to the right with little change in long-run aggregate supply.
B)aggregate demand curve to the left with little change in long-run aggregate supply.
C)long-run aggregate supply curve to the right with little change in aggregate demand.
D)long-run aggregate supply curve to the left with little change in aggregate demand.

Question

Quizplus · Accepted Answer

Critics argued that tax cuts would increase aggregate demand (because people would have more money to spend) without significantly increasing long-run aggregate supply, leading to higher inflation. This scenario is described by moving the aggregate demand curve to the right while the long-run aggregate supply remains relatively unchanged.

During the Early Years of the Reagan Administration, Some of the Presidential