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6. 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 cut. PRICE LEVEL 130 120 110 100 90 80 70 0 10 20 OUTPUT Aggregate Demand 40 50 60 Aggregate Demand Suppose the govemments of two different economies, economy A and economy B, Implement a permanent tax cut of the same size. The marginal. propensity to consume (MPC) in economy A is 0.7 and the MPC in economy B is 0.85. The economies are identical in all other respects. The tax cut will have a smaller impact on aggregate demand in the economy with the

6. 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 cut. PRICE LEVEL 130 120 110 100 90 80 70 0 10 20 OUTPUT Aggregate Demand 40 50 60 Aggregate Demand Suppose the govemments of two different economies, economy A and economy B, Implement a permanent tax cut of the same size. The marginal. propensity to consume (MPC) in economy A is 0.7 and the MPC in economy B is 0.85. The economies are identical in all other respects. The tax cut will have a smaller impact on aggregate demand in the economy with the

Principles of Macroeconomics (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781305971509
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter8: Application: The Costs Of Taxation
Section: Chapter Questions
Problem 3CQQ
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6. 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 cut. PRICE LEVEL 130 120 110 100 90 80 70 0 10 20 30 OUTPUT Aggregate Demand 40 50 60 Aggregate Demand (2) Suppose the governments of two different economies, economy A and economy B, Implement a permanent tax cut of the same size. The marginal propensity to consume (MPC) in economy A is 0.7 and the MPC in economy B is 0.85. The economies are identical in all other respects. The tax cut will have a smaller impact on aggregate demand in the economy with the
Transcribed Image Text:6. 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 cut. PRICE LEVEL 130 120 110 100 90 80 70 0 10 20 30 OUTPUT Aggregate Demand 40 50 60 Aggregate Demand (2) Suppose the governments of two different economies, economy A and economy B, Implement a permanent tax cut of the same size. The marginal propensity to consume (MPC) in economy A is 0.7 and the MPC in economy B is 0.85. The economies are identical in all other respects. The tax cut will have a smaller impact on aggregate demand in the economy with the
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