Consider a fictional economy that is operating at its long-run equilibrium. The following graph shows the aggregatedemand curve (AD) and short-run aggregate supply curve (SRAS) for the economy. The long-run aggregate supply curve(LRAS) is represented by a vertical line at $6 trillion. The economy is initially producing at potential output.Suppose that fiscal authorities decide to increase marginal tax rates. Assume that this change in marginal tax rates isperceived as a long-term change.Shift the appropriate curves to illustrate the supply-side view of the fiscal policy effect on output and the price level.PRICE LEVEL12010080402000LRASSRASAD246810QUANTITY OF OUTPUT (Trillions of dollars)12ADSRASLRAS?True or False: Supply-side economics is a long-run, growth-oriented strategy.

In order to foster economic growth and prosperity, supply-side economics places a strong emphasis on…

Answered: True or False: Supply-side economics is…

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True or False: Supply-side economics is a long-run, growth-oriented strategy.

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Question

Consider a fictional economy that is operating at its long-run equilibrium. The following graph shows the aggregate
demand curve (AD) and short-run aggregate supply curve (SRAS) for the economy. The long-run aggregate supply curve
(LRAS) is represented by a vertical line at $6 trillion. The economy is initially producing at potential output.
Suppose that fiscal authorities decide to increase marginal tax rates. Assume that this change in marginal tax rates is
perceived as a long-term change.
Shift the appropriate curves to illustrate the supply-side view of the fiscal policy effect on output and the price level.
PRICE LEVEL
120
100
80
40
20
0
0
LRAS
SRAS
AD
2
4
6
8
10
QUANTITY OF OUTPUT (Trillions of dollars)
12
AD
SRAS
LRAS
?
True or False: Supply-side economics is a long-run, growth-oriented strategy.

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