A tax cut shifts the ______ to the right, and the aggregate demand curve ______.
A) IS; shifts to the right
B) IS; does not shift
C) LM: shifts to the right
D) LM; does not shift

Question

Quizplus · Accepted Answer

A tax cut shifts the IS curve to the right, as it increases disposable income and consumption. This leads to an increase in aggregate demand, causing the aggregate demand curve to shift to the right as well. The LM curve remains unchanged as there is no direct effect of a tax cut on monetary policy.

A Tax Cut Shifts the ______ to the Right, and the Aggregate