A Tax Cut That Affects Both Aggregate Demand and Potential

question 63

Multiple Choice

A tax cut that affects both aggregate demand and potential output is predicted to _____ the long-run equilibrium level of output, while inflation _____.

• A)increase; increases
• B)increase; decreases
• C)increase; may increase, decrease, or remain unchanged
• D)decrease; decrease

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Definitions:

Parasympathetic Division

A branch of the autonomic nervous system responsible for stimulating "rest-and-digest" or calming activities, reducing the body's stress response.

Autonomic Nervous System

The part of the nervous system that controls involuntary actions of the smooth muscles and heart and glands, regulating functions such as heart rate, digestion, respiratory rate, and pupillary response.

Sympathetic Division

Part of the autonomic nervous system that prepares the body for fight-or-flight responses, increasing heart rate and blood pressure, among other effects.

Overactive Thyroid

A condition, also known as hyperthyroidism, where the thyroid gland produces excessive amounts of thyroid hormones, leading to various health issues.