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

Question

Quizplus · Accepted Answer

If personal taxes were decreased, individuals would have more disposable income, which would increase consumption and aggregate demand, leading to an increase in output. If resource productivity is also increased, it would lead to an increase in supply, further increasing output. Therefore, the equilibrium output would necessarily rise. The price level may or may not change, depending on the relative magnitudes of the shifts in aggregate demand and supply.

If Personal Taxes Were Decreased and Resource Productivity Increased Simultaneously