When taxes go down, then output increases, causing the aggregate supply curve to shift to the right. Conversely, when taxes go up, then output decreases, causing the aggregate supply curve to shift to the left. This relationship is emphasized by

Question

Quizplus · Accepted Answer

The relationship described in the question is a key principle of supply-side economics. Supply-side economists argue that reducing taxes will incentivize individuals and businesses to work and invest more, leading to increased output and economic growth. Conversely, increasing taxes will discourage work and investment, leading to lower output and slower growth. This principle is often used to argue for tax cuts as a way to stimulate the economy.

When Taxes Go Down, Then Output Increases, Causing the Aggregate