A tax cut typically leads to an increase in aggregate demand, which in turn leads to higher inflation and lower unemployment in the short run. This movement along the Phillips Curve corresponds to a shift up and to the left. Therefore, the correct answer is B.

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A Tax Cut

Question 28

Multiple Choice

A tax cut

A) pushes the inflation-unemployment coordinates down (and to the right) along a short run Phillips Curve
B) pushes the inflation-unemployment nexus up and to the left along a short run Phillips Curve
C) shifts the Phillips Curve outward
D) shifts the Phillips Curve inward
E) makes the slope of the Phillips Curve steeper

Correct Answer: