42. Changes in taxes The following graph shows the aggregate demand curve. Shift the aggregate demand curve on the graph to show the impact of a tax hike. PRICE LEVEL 130 120 110 100 90 80 70 0 10 20 30 OUTPUT Aggregate Demand 40 50 60 10 Aggregate Demand Suppose the governments of two different economies, economy 3 and economy K, implement a permanent tax cut of the same size. The marginal propensity to consume (MPC) in economy 3 is 0.85 and the MPC in economy K is 0.8. The economies are identical in all other respects.
42. Changes in taxes The following graph shows the aggregate demand curve. Shift the aggregate demand curve on the graph to show the impact of a tax hike. PRICE LEVEL 130 120 110 100 90 80 70 0 10 20 30 OUTPUT Aggregate Demand 40 50 60 10 Aggregate Demand Suppose the governments of two different economies, economy 3 and economy K, implement a permanent tax cut of the same size. The marginal propensity to consume (MPC) in economy 3 is 0.85 and the MPC in economy K is 0.8. The economies are identical in all other respects.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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