Based on the Figure Below

question 163

Multiple Choice

Based on the figure below. Starting from long-run equilibrium at point C, a tax cut that increases aggregate demand from AD to AD¹ will lead to a short-run equilibrium at point ___ and eventually to a long-run equilibrium at point ____, if left to self-correcting tendencies.

• A) D; B
• B) D; C
• C) B; A
• D) B; C

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Definitions:

Taxpayer's Business

This term generally refers to any business activity or venture that is conducted with the aim of generating income or profit taxable to the individual or entity undertaking the activity.

Cash-Basis Taxpayer

An individual or entity that reports income and deductions in the year that cash is received or paid, respectively.

Account Receivable

Money owed to a company by its customers for goods or services that have been delivered or used but not yet paid for.

Bad Debt

A financial loss that occurs when a debtor fails to repay a loan or credit extended, considered non-recoverable and potentially eligible for a tax deduction.