A permanent marginal tax decrease is likely to
A) shift the short-run aggregate supply curve to the left and the long-run aggregate supply curve to the right.
B) shift both the short-run and the long-run aggregate supply curves to the left.
C) shift the short-run aggregate supply curve to the right,and the long-run aggregate supply curve to the left.
D) shift both the short run and the long run aggregate supply curves to the right.

Question

Quizplus · Accepted Answer

A permanent marginal tax decrease would increase the after-tax return to work and investment, leading to an increase in the quantity and quality of labor and capital inputs. This would shift both the short-run and the long-run aggregate supply curves to the right, increasing output and decreasing the price level. Therefore, choice D is the correct answer.

A Permanent Marginal Tax Decrease Is Likely to