Refer to Figure 18.6 for the following questions.
Figure 18.6
-Suppose the federal government reduces income taxes.Assume that the movement from A to B in Figure 18.6 represents normal growth in the economy before the tax change.If the tax change is not effective and labour supply and savings do not increase because of the tax change,then the tax change will __________.

Question

Refer to Figure 18.6 for the following questions.
Figure 18.6 
-Suppose the federal government reduces income taxes.Assume that the movement from A to B in Figure 18.6 represents normal growth in the economy before the tax change.If the tax change is not effective and labour supply and savings do not increase because of the tax change,then the tax change will __________.

Quizplus · Accepted Answer

If the tax change is not effective and labour supply and savings do not increase, then the aggregate demand curve will not shift to the right, and the economy will remain at point A. Therefore, the price level (PL) and output (Y) will remain at their initial levels, and the long-run aggregate supply curve (LRAS) will also remain unchanged. Thus, there will be no change in the price level.

Refer to Figure 18.6 for the Following Questions