For purposes of this question you may assume that the Keynes an approach to fisc

Question

For purposes of this question you may assume that the Keynes an approach to fiscal policy works. Suppose a country wants to stimulate the economy. It issues a tax rebate to all of its citizens, hoping that increased consumer spending will hep struggling businesses remain profitable. Economists warn that the move will likely be inflationary in the short run. The foll owing diagram shows the aggregate demand (AD) and short run aggregate supply (SRAS) curves for this country before the inflationary period: PRICE LEVEL SRAS AD REAL GDP Which of the following figures most closely illustrates the change in the economy resulting from the tax rebate that economists wam about? Oa. PRICE LEVEL SRAS AD2 AD1 REAL GDP

Explanation / Answer

Tax rebate increases consumption expenditure of public and thus increases the C component of AD curve and shifts the curve rightwards.

Answer is b)

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.