The following graph plots an aggregate demand curve.   Using the graph, shift the aggregate demand curve to depict the impact that a tax hike has on the economy.   Suppose the governments of two very similar economies, economy Y and economy Z, implement a tax cut of equal size. The tax cut in economy Y is temporary, while the tax cut in economy Z is permanent. The economies are otherwise completely identical.   The tax cut will have a smaller impact on aggregate demand in the economy with the  (temporary tax cut/permanent tax cut)  .

Q: The desired aggregate expenditure function of an economy is illustrated in the graph to the right.…

A: Aggregate expenditure: aggregate expenditure is the sum of consumption expenditure, investment…

Q: We use the following terminology in this part: aggregate income Y and disposable income Ya (= Y –T),…

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Q: Imagine this economy has a 10% tax on income. The following are exogenous (not directly affected by…

A: Given, C = 3 + 0.72Y, G = 11                 I = 4 X = M = 0

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A: Budget plan refers to that plan which provides estimates of the future revenues and expenses.

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Q: Suppose that the components of planned spending in an economy are C=500 +0.8(Y-T), I=1500, G=2000,…

A: Short run refers to the time period which does not allow some of the factors of production change…

Q: Suppose that the economy is depicted by the following relationship: Expenditures =C+I+G+X where: C =…

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Q: Background: Between 2002 and 2003, the United States government increased its purchases on military…

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Q: The following are exogenous (not directly affected by income): G = 11 I = 4 X = M = 0 The…

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Q: In a Keynesian cross diagram, if the government decreases the tax rate, or makes the leakage of…

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Q: n economy is described by the following equations: C = 1600 + 0.8(Y – T) I = 1000 G = 1800 T =…

A: C = 1600 + 0.8(Y – T) I = 1000 G = 1800 T = 3000 + tY

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Q: Q2. Suppose an economy is represented by the following equations. Z=C+I+G C = 300 + 0.5 YD T= 400 I…

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Q: Right now many economies in the world are experiencing a downturn due to the Corona Virus. a) What…

A: Hello, thank you for the question. Since there are multiple subpart questions posted here, only the…

Q: Suppose the US Federal Government decides to increase its spending without issuing debt by raising…

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Q: INTEREST RATE (Percent) Supply Demand LOANABLE FUNDS (Billions of dollars) Demand O Supply (?)…

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Q: An economy's IS curve represents the following markets. Goods: slc = 4 MPC = 0.7 G = 10 T = 9…

A: C=a+b(Y-T) C=4+0.7(Y-9) T=9 MPC=0.7 G=10 I=10-90r r = 0.047

Q: In the IS curve model, the consumer demand can be represented by the following equation: C = a +…

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Q: The graph below depicts an economy where a decline in aggregate demand has caused a recession.…

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Q: Suppose that Congress and President decide on lowering taxes and increasing government spending in…

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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.