Consider a fictional economy that Is operating at its long-run equilibrium. The

Question

Consider a fictional economy that Is operating at its long-run equilibrium. The following graph shows the aggregate demand (AD) curve and short-run aggregate supply (AS) curve for the economy. The long-run aggregate supply curve Is represented by a vertical line at the potential GDP level of $6 trillion. The economy is Initially producing at potential GDP. Suppose that fiscal authorities decide to increase marginal tax rates. Assume that this change in marginal tax rates Is perceived as a long-term change. Shift the appropriate curves to Illustrate the supply-side view of the fiscal policy effect on output and the price level.

Explanation / Answer

when taxes are imposed on this good, the price goes up. so the supply curve usually comes down, that means it shifts towards left from the existigng place. when prices goes up the demand for this product should comes down (according to law of demand). so automatically the supply will be comes down and the curve should moves towards left from its existing point.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

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