Use the dropdown menus to fill in the following table to complete the causation chains for the Keynesian effects and supply-side effects of the income tax cut. Supply-side Policy Keynesian Policy1.Income tax cut1.Income tax cut2. 2. 3. aggregate supply3. aggregate demand4.Real GDP and the price level 4.Real GDP and the price level On the graph that follows, shift one of the curves to illustrate the dominant impact of the income tax cut according to supply-side economists.PRICE LEVEL (CPI)Supply-side EffectsREAL GDP (Billions of dollars)ASADADAS? 7. Keynesian demand-side versus supply-side effectsConsider an economy operating below its full-employment output level. The government wants to enact a reduction in income taxes in an effort torestore the economy to full-employment output.On the graph that follows, shift one of the curves to illustrate the impact of the income tax cut on aggregate supply (AS) and aggregate demand (AD)that is emphasized by Keynesian economists.PRICE LEVEL (CPI)Keynesian EffectsREAL GDP (Billions of dollars)ASADADAS(?)

The real economic growth rate, or real GDP growth rate, estimates economic growth, as conveyed by…

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Use the dropdown menus to fill in the following table to complete the causation chains for the Keynesian effects and supply-side effects of the income tax cut.

	Supply-side Policy		Keynesian Policy
1.	Income tax cut	1.	Income tax cut
2.		2.
3.	aggregate supply	3.	aggregate demand
4.	Real GDP and the price level	4.	Real GDP and the price level

On the graph that follows, shift one of the curves to illustrate the dominant impact of the income tax cut according to supply-side economists.
PRICE LEVEL (CPI)
Supply-side Effects
REAL GDP (Billions of dollars)
AS
AD
AD
AS
?

7. Keynesian demand-side versus supply-side effects
Consider an economy operating below its full-employment output level. The government wants to enact a reduction in income taxes in an effort to
restore the economy to full-employment output.
On the graph that follows, shift one of the curves to illustrate the impact of the income tax cut on aggregate supply (AS) and aggregate demand (AD)
that is emphasized by Keynesian economists.
PRICE LEVEL (CPI)
Keynesian Effects
REAL GDP (Billions of dollars)
AS
AD
AD
AS
(?)

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