Consider a tax cut which affects not only consumer disposable income,but also after-tax earnings from labor supplied to labor markets and from financial assets acquired through saving.In the long run we would expect this tax cut to
A)decrease the price level and increase the level of real GDP.
B)increase both the price level and the level of real GDP.
C)decrease the level of real GDP.
D)decrease the price level.

Question

Quizplus · Accepted Answer

A tax cut that affects both consumer disposable income and after-tax earnings from labor and financial assets is likely to increase aggregate demand in the economy. This increase in demand would result in an increase in both price level and real GDP in the long run. Therefore, the best choice is B, which indicates an increase in both price level and real GDP.

Consider a Tax Cut Which Affects Not Only Consumer Disposable