Chapter 11, Problem 7P

To determine

The impact of tax cut on the recessionary gap.

Concept Introduction:

Fiscal Policy: Fiscal policy is the policy by which government regulates the nation’s economy by adjusting the government spending and controlling the tax rates. It tries to influence the demand side of the economy.

Recessionary Gap: Recessionary Gap is the gap between actual output and potential output under full employment situation when actual output is less than potential output.