According to the IS-MP-PC model, a lower level of taxation causes
A)a temporarily lower GDP.
B)lower inflation.
C)a temporarily higher GDP.
D)none of the above.

Question

Quizplus · Accepted Answer

According to the IS-MP-PC model, a lower level of taxation causes an increase in disposable income, which increases consumption and shifts the IS curve to the right. This leads to a temporarily higher GDP. Additionally, lower taxation reduces the cost of production and increases the supply of goods, which decreases inflation.

According to the IS-MP-PC Model, a Lower Level of Taxation