In an aggregate demand-aggregate supply framework, ﬁscal policy that emphasizes cutting taxes as a means of improving incentives to work, save, and invest would be characterized primarily as a
A) rightward shift of the aggregate demand curve.
B) leftward shift of the aggregate demand curve.
C) rightward shift of the long-run aggregate supply curve.
D) leftward shift of the long-run aggregate supply curve.

Question

Quizplus · Accepted Answer

Fiscal policy that focuses on cutting taxes to improve incentives to work, save, and invest directly affects the productive capacity of the economy by encouraging more labor and investment. This leads to an increase in the potential output, which is represented by a rightward shift of the long-run aggregate supply curve.

In an Aggregate Demand-Aggregate Supply Framework, ﬁScal Policy That Emphasizes