When all else is equal, if an increase in federal income tax leads to a decrease in equilibrium output and no change in the equilibrium price, then we can conclude that the economy must be operating on the:
A) classical range of the short-run aggregate supply curve.
B) Keynesian range of the short-run aggregate supply curve.
C) upward-sloping range of the short-run aggregate supply curve.
D) long-run aggregate supply curve.

Question

Quizplus · Accepted Answer

The Keynesian range of the short-run aggregate supply curve is characterized by a horizontal segment, indicating that output can change without affecting the price level. This is consistent with the scenario where an increase in federal income tax decreases equilibrium output without changing the equilibrium price.

When All Else Is Equal, If an Increase in Federal