Question

Suppose legislatures announce a tax cut. Please shift the appropriate curve or curves to illustrate the result of this policy.

Answer 1

Answer:

*see image*

Explanation:

Aggregate demand spending is composed of four components: consumption (C), investment (I), government (G), and the difference of a country's exports and imports (X − M). If a tax cut occurs, this increases C, leading to a rightward shift of the aggregate demand curve. Long‑run aggregate supply and short‑run aggregate supply will not be affected.

An economy is in equilibrium when AD=AS=LRAS.In this economy AS=AS but is not equal to LRAS. When government increases it's spending the aggregate demand rises because government spending is a part of AD, so AD will shift to the right.