Consider all the effects of fiscal policy. An income tax cut

Question

Quizplus · Accepted Answer

An income tax cut increases disposable income and encourages consumer spending, which in turn increases AD and real GDP. However, the increase in demand may also cause prices to rise, leading to potential inflationary pressures. The final effect on the price level will depend on the extent of the tax cut and other factors affecting aggregate supply. Therefore, the increase in real GDP is a certain effect, while the effect on the price level is uncertain.

Consider All the Effects of Fiscal Policy