When an economy is operating on the classical range on the short-run aggregate supply curve, a decrease in _____ will NOT lead to a decrease in equilibrium price.
A) money supply
B) income taxes
C) discretionary government spending
D) exports to foreign countries

Question

Quizplus · Accepted Answer

In the classical range of the short-run aggregate supply curve, the economy is at full employment, and output is not affected by changes in aggregate demand. A decrease in income taxes would increase disposable income, potentially increasing aggregate demand, which would not lead to a decrease in equilibrium price.

When an Economy Is Operating on the Classical Range on the Short-Run