If a Tax Cut Increases Aggregate Demand More Than Aggregate

question 44

Multiple Choice

If a tax cut increases aggregate demand more than aggregate supply, real GDP ________ and the price level ________.

• A) increases; does not change
• B) decreases; rises
• C) increases; rises
• D) decreases; falls
• E) increases; falls

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Definitions:

Market-clearing Quantity

is the quantity of goods or services at which supply equals demand, so there are no surpluses or shortages in the market.

Elasticity of Demand

A determination of demand elasticity in relation to the price changes of a product.

Interaction Among Firms

Refers to the relationships and activities that occur between companies, such as competition, cooperation, and market structure impacts.

Elasticity of Demand

This refers to the measure of how much the quantity demanded of a good or service changes in response to a change in its price.