Refer to Figure 18.6 for the Following Questions

question 12

Multiple Choice

Refer to Figure 18.6 for the following questions.
Figure 18.6
-Suppose the federal government reduces income taxes.Assume that the movement from A to B in Figure 18.6 represents normal growth in the economy before the tax change.Also assume that aggregate demand does not change.If the tax change is effective and labour supply and savings increase because of the tax change,then the tax change will __________.

• A) shift LRAS₂ to the right
• B) decrease output to less than Y₂
• C) not change the price level
• D) decrease the price level to less than P₁, but more than P₂

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Definitions:

Influence

The capacity to have an effect on the character, development, or behavior of someone or something.

Perfectly Competitive Market

A market structure characterized by a large number of buyers and sellers, homogeneous products, and easy entry and exit, leading to price-taking behavior.

Variable Costs

Costs that vary directly with the level of output or business activity, such as materials and labor.

Revenues

The total income produced by a company from its activities, before any expenses are subtracted.