The following graph shows the aggregate demand curve. Suppose the governments of two different economies, economy...

The following graph shows the aggregate demand curve.

Shift the aggregate demand curve on the graph to show the impact of a tax hike. 130 120 Aggregate Demand 110 100 90 Aggregate Demand 80 70 10 40 50 30 60 20 OUTPUT

Suppose the governments of two different economies, economy J and economy K, implement a tax cut of the same size. The tax cut in economy J is permanent, while the tax cut in economy K is temporary. The economies are identical in all other respects.

The tax cut will have a larger impact on aggregate demand in the economy with the (temporary tax cut or permanent tax cut)

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Expert Solution

Rahul Sunny answered 2 years ago

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