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:

Profit

This is the financial gain obtained when the amount earned from a business activity exceeds the costs, expenses, and taxes needed to sustain the activity.

Quantity Demanded

The sum of a particular good or service that customers are ready and financially able to buy at a given price.

Productivity

The measure of the efficiency of production, often quantified as the ratio of outputs produced to inputs used in the production process.

Factor Labor

This refers to the human effort, both physical and mental, used in the production of goods and services.