Consider a tax cut that affects not only consumer disposable income, but also after-tax earnings from labour supplied to labour markets and from financial assets acquired through saving.In the long run, we would expect this tax cut to

Question

Quizplus · Accepted Answer

A tax cut that affects consumer disposable income, after-tax earnings from labor supplied to labor markets, and financial assets acquired through saving should result in an increase in aggregate demand. This increase in aggregate demand will lead to an increase in real GDP. The price level may increase slightly due to the increased demand, but it should not have a significant impact on the overall trend of an increase in real GDP. Therefore, the best choice is C, which states that the tax cut will increase the level of real GDP.

Consider a Tax Cut That Affects Not Only Consumer Disposable