Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise real GDP?
A)The shift of aggregate demand, but not the shift of aggregate supply
B)Both the shift of aggregate demand and the shift of aggregate supply
C)The shift of aggregate supply, but not the shift of aggregate demand
D)Neither the shift of aggregate demand nor the shift of aggregate supply

Question

Quizplus · Accepted Answer

Both the shift of aggregate demand and the shift of aggregate supply can raise real GDP. An increase in aggregate demand can raise GDP by increasing total spending in the economy, while an increase in aggregate supply can raise GDP by making the economy more productive.

Suppose a Tax Cut Affects Aggregate Demand and Aggregate Supply