Using the Aggregate Demand-Aggregate Supply Model, Predict What Happens in the Short

question 142

Multiple Choice

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the federal government enacts a cut in the personal income tax rates.

• A) The aggregate supply curve shifts right; the aggregate demand curve is not affected; price level decreases; real GDP increases.
• B) The aggregate supply curve shifts left; the aggregate demand curve is not affected; price level increases; real GDP decreases.
• C) The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase.
• D) The aggregate demand curve shifts left; the aggregate supply curve is not affected; price level and real GDP decrease.

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Definitions:

Compensating Differential

Additional pay offered to employees to offset unpleasant aspects of a job or the risks associated with it.

Desirability

Desirability refers to the attractiveness or appeal of a good, service, or concept to consumers or participants, influencing their choice or preference.

Compensation

Refers to the total amount of the monetary and non-monetary pay provided to an employee by an employer in return for work performed as required.

Commission

A fee paid to an agent or employee for transacting a piece of business or performing a service, especially a percentage of the money received from a total paid to the agent responsible for the business.