If personal taxes were decreased and input productivity increased simultaneously, the equilibrium:
A)output would rise.
B)output would fall.
C)price level would necessarily fall.
D)price level would necessarily rise.

Question

Quizplus · Accepted Answer

Decreasing personal taxes would increase disposable income and stimulate consumption, which in turn would increase the demand for goods and services. Increasing input productivity would decrease the cost of production which would result in an increase in supply. As a result, the equilibrium output would rise. There is no necessary relationship between changes in personal taxes and the price level, so options C and D are not correct.

If Personal Taxes Were Decreased and Input Productivity Increased Simultaneously