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 N and economy M, implement a tax cut of equal size. The tax cut in economy N is permanent, while the tax cut in economy M is temporary. The economies are otherwise completely identical. The tax cut will have a larger impact on aggregate demand in the economy with the (temporary tax cut/permanent tax cut) .
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 N and economy M, implement a tax cut of equal size. The tax cut in economy N is permanent, while the tax cut in economy M is temporary. The economies are otherwise completely identical. The tax cut will have a larger impact on aggregate demand in the economy with the (temporary tax cut/permanent tax cut) .
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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 N and economy M, implement a tax cut of equal size. The tax cut in economy N is permanent, while the tax cut in economy M is temporary. The economies are otherwise completely identical.
The tax cut will have a larger impact on aggregate demand in the economy with the (temporary tax cut/permanent tax cut) .
Transcribed Image Text:Using the graph, shift the aggregate demand curve to depict the impact that a tax hike has on the economy.
PRICE LEVEL
130
120
110
100
90
80
70
0
10
20
30
OUTPUT
Aggregate Demand
40
50
60
Aggregate Demand
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