If a tax cut increases aggregate demand more than aggregate supply,real GDP ________ and the price level ________.
A)increases;rises
B)increases;falls
C)decreases;rises
D)decreases;falls
E)increases;does not change

Question

Quizplus · Accepted Answer

When a tax cut increases aggregate demand more than aggregate supply, it will shift the AD curve to the right. As a result, both real GDP and the price level will increase. Therefore, the correct answer is A - increases; rises.

If a Tax Cut Increases Aggregate Demand More Than Aggregate