Figure 16-1
-Refer to Figure 16-1.Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium.Using the basic AD-AS model in the figure above,this would be depicted as a movement from

Question

Figure 16-1 
-Refer to Figure 16-1.Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium.Using the basic AD-AS model in the figure above,this would be depicted as a movement from

Quizplus · Accepted Answer

Lowering taxes increases consumers' disposable income, leading to higher consumption and aggregate demand. In the AD-AS model, this shift is represented by a movement from a lower point (A) on the AD curve to a higher point (B), moving the economy towards its potential GDP.

Figure 16-1 -Refer to Figure 16-1.Suppose the Economy Is in Short-Run Equilibrium