Consider the exhibit below for the following questions.
Figure 33-4
-Refer to Figure 33-4.A decrease in taxes would move the economy from C to
A)B in the short run and the long run.
B)D in the short run and the long run.
C)B in the short run and A in the long run.
D)D in the short run and C in the long run.

Question

Consider the exhibit below for the following questions.
Figure 33-4 
-Refer to Figure 33-4.A decrease in taxes would move the economy from C to
A)B in the short run and the long run. 
B)D in the short run and the long run. 
C)B in the short run and A in the long run. 
D)D in the short run and C in the long run.

Quizplus · Accepted Answer

According to the exhibit, a decrease in taxes would shift the AD curve to the right, causing output and prices to increase in the short run, moving the economy from C to B. However, in the long run, prices adjust, and the economy moves back to its potential level of output. Therefore, in the long run, the economy would move from B to A, as shown by the movement from the short run aggregate supply curve (SRAS1) to the long run aggregate supply curve (LRAS).

Consider the Exhibit Below for the Following Questions