Question

If government cuts taxes. A. after tax income should increase shifting AD to the right to a higher equilibrium level of output B. after tax income and the equilibrium level of output remain unchanged C. after tax income remains unchanged but the equilibrium level of output would increase D. after tax income should increase shifting AD to the left to a lower equilibrium level of output

Answer 1

Answer:

A. after tax income should increase shifting AD to the right to a higher equilibrium level of output

Explanation:

If the government reduces tax, the after tax income would increase and so woold demand. Thus, the aggregate demand curve would shift rightward to a higher equilibrium level of output.

If the government cuts taxes, after tax income should decrease shifting AD to the left to a lower equilibrium level of output

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