-Based on the diagram above,starting from a long-run equilibrium at point C,a tax cut that increases aggregate demand from ADI to ADI¹ will lead to a short-run equilibrium at point ________,and eventually to a long-run equilibrium at point ________,due to rising inflation and the raising of real interest rates by the Bank of Canada.

Question

-Based on the diagram above,starting from a long-run equilibrium at point C,a tax cut that increases aggregate demand from ADI to ADI<sup>1</sup> will lead to a short-run equilibrium at point ________,and eventually to a long-run equilibrium at point ________,due to rising inflation and the raising of real interest rates by the Bank of Canada. A) D;B B) D;C C) B;A D) B;C E) B;B

Quizplus · Accepted Answer

In the short run, a tax cut increases aggregate demand, moving the equilibrium from point C to point D. In the long run, rising inflation and higher interest rates will shift the economy back to a new long-run equilibrium at point B.

-Based on the Diagram Above,starting from a Long-Run Equilibrium at Point