Suppose the US Federal Government decides to increase its spending without issuing debt by raising additional taxes (i.e., tax-financed government spending). Which of the following statements describes how tax-financed government spending affects the price level over the short run and the long run?      The price level remains unchanged over the short run and the long run.       The price level increases above it's initial level in short run and further increases over the long run.       The price level decreases below it's initial level in the short run and further decreases over the long run.       The price level decreases below its initial level in the short-run but increases above its initial level over the long run.

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A:

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Laffer Curve Analysis

In terms of economics, the Laffer curve was popular among those economists who were or who belonged to the supply side of the economic peripheral.  This concept was popularized by the famous supply-side economist known as Arthur Laffer. This curve illustrated the relationship between the tax rates and government revenue. It is already known that the tax which the public or individuals residing in an economy bear is the revenue or income of the government with the help of which the government does all the necessary works in the society, which is beneficial for the economy.