6. Changes in taxes The following graph shows the aggregate demand curve. Shift the aggregate demand...

6. Changes in taxes

The following graph shows the aggregate demand curve.

Shift the aggregate demand curve on the graph to show the impact of a tax cut.

130 Aggregate Demand 120 110 100 02 90 Aggregate Demand 80 70 40 50 60 30 OUTPUT 10 20

Suppose the governments of two different economies, economy X and economy Y, implement a permanent tax cut of the same size. The marginal propensity to consume (MPC) in economy X is 0.75 and the MPC in economy Y is 0.8. The economies are identical in all other respects.

The tax cut will have a larger impact on aggregate demand in the economy with the (larger MPC/ smaller MPC)

Expert Solution

Rahul Sunny answered 2 years ago

State which of the following changes cause a shift in the aggregate demand curve and which...

State which of the following changes cause a shift in the aggregate demand curve and which ones are a movement along it. Also provide the direction of the change. A cut in government purchases. A crash in the U.S. stock market. A shift to a lower inflation target in the monetary policy rule. Being thrifty now becoming fashionable. An increase in the European interest rate.

The following graph shows the aggregate demand curve in a hypothetical economy. Assume that the economy's...

The following graph shows the aggregate demand curve in a hypothetical economy. Assume that the economy's money supply remains fixed Aggregate Demand 160 Aggregate Demand 150 140 130 120 02 110 t 100 90 80 0 100 200 300 400 5 600 700 800 REAL GDP (Billions of dollars) Which of the following are reasons the aggregate demand curve is downward sloping? Check all that apply. A lower price level leads to a lower interest rate. A higher price level...

Explain the changes that would cause the dynamic aggregate demand curve to shift.

Draw a basic aggregate demand curve and aggregate supply graph (with LRAS constant) that shows the...

Draw a basic aggregate demand curve and aggregate supply graph (with LRAS constant) that shows the economy in the long-run equilibrium. Assume that there is a large increase in demand for Saudi exports. Show the resulting short-run equilibrium on your graph. In this short-run equilibrium, is the unemployment rate likely to be higher or lower than it was before the increase in the exports? Briefly explain. Explain how the economy adjusts back to long-run equilibrium. When the economy has adjusted...

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

The following graph shows the aggregate demand curve. 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)

Which of the following will cause the aggregate demand curve to shift to the right ?...

Which of the following will cause the aggregate demand curve to shift to the right ? a. A decrease in household wealth b. A decrease in the price level c. Consumer expectations of higher future income d. An increase in the interest rate Which of the following events would most likely caused the increase in aggregate demand a. An increase in interest rates b. An increase in household wealth c. A decrease in consumer confidence d. A decrease in the...

Which of the following changes will shift the demand curve for Advil to the left? (a)...

Which of the following changes will shift the demand curve for Advil to the left? (a) Increase in the price of Advil (b) Increase in family income (c) Increase in the price of a substitute for Advil (d) Increase in the price of a complement to Advil 5. (e) None of the above

Which of the following will shift the aggregate demand curve to the left? Instructions: You may...

Which of the following will shift the aggregate demand curve to the left? Instructions: You may select more than one answer. Click the box with a check mark for correct answers and click to empty the box for the wrong answers. an increase in the incomes of foreign households due to an economic boom overseas an increase in corporate profit taxes by the government an increase in interest rates a decrease in personal income taxes by the government

Determine whether each of the following would cause a shift of the aggregate demand curve, a...

Determine whether each of the following would cause a shift of the aggregate demand curve, a shift of the aggregate supply curve, a shift in neither curve, or a shift in both curves. If a shift is caused, indicate which curve shifts, and in which direction it shifts. What happens to aggregate output and the price level in each case? 1] The price level changes. 2] Consumer confidence increases. 3] The supply of resources decreases. 4] The wage rate decreases.

what are the factors that causes a shift in the aggregate demand curve and why?

Question