Suppose a tax cut affected aggregate demand and aggregate supply. The shift in aggregate supply would make the
A)price level and real GDP change by more than otherwise.
B)price level change by more than otherwise and real GDP change by less than otherwise.
C)price level change by less than otherwise and real GDP change by more than otherwise.
D)price level and real GDP change by less than otherwise.

Question

Quizplus · Accepted Answer

A tax cut can increase aggregate supply by reducing production costs, leading to lower prices (price level change by less than otherwise) and higher output (real GDP change by more than otherwise).

Suppose a Tax Cut Affected Aggregate Demand and Aggregate Supply