Figure 27-1
-Refer to Figure 27-1. Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. Using the basic AD-AS model in the figure above, this would be depicted as a movement from

Question

Figure 27-1 
-Refer to Figure 27-1. Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. Using the basic AD-AS model in the figure above, this would be depicted as a movement from

Quizplus · Accepted Answer

Lowering taxes increases aggregate demand, shifting the AD curve rightward from A to B, moving the economy towards long-run equilibrium.

Figure 27-1 -Refer to Figure 27-1. Suppose the Economy Is in Short-Run