12.3 Shocks to the System
Refer to the information provided in Figure 12.3 below to answer the questions that follow. Figure 12.3
-Refer to Figure 12.3. Assume the economy is at Point A. Lower oil prices shift the aggregate supply curve to AS₀. If the government decides to counter the effects of lower oil prices by decreasing net taxes, then the price level will be ________ than P₀ and output will be ________ than Y₀.

Question

12.3 Shocks to the System
Refer to the information provided in Figure 12.3 below to answer the questions that follow.

Figure 12.3
-Refer to Figure 12.3. Assume the economy is at Point A. Lower oil prices shift the aggregate supply curve to AS₀. If the government decides to counter the effects of lower oil prices by decreasing net taxes, then the price level will be ________ than P₀ and output will be ________ than Y₀.

Quizplus · Accepted Answer

Decreasing net taxes increases aggregate demand, which, combined with the initial shift of the aggregate supply curve to the right due to lower oil prices, results in both a higher price level and greater output than initially at Point A.