Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 24: Q. 9 (page 601)

A policymaker claims that tax cuts led the economy out of a recession. Can we use the AD/AS diagram to show this?

Short Answer

Expert verified

A tax cut during the recession will lead the economy out of it by a shift in the AD curve.

Step by step solution

01

Step 1. Definitions.

The total quantity of output (i.e. real GDP) firms will produce and sell is aggregate supply

The amount of total spending on domestic goods and services in an economy is aggregate demand.

02

Step 2. Impact on AD/AS curve.

When there is a tax cut, investment and consumer spending increases depending on the time of the cut. A tax cut during the recession will lead the economy out of it by a shift in the AD curve.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

How is long-term growth illustrated in an AD/AS model?

How is recession illustrated in an AD/AS model?

Would a shift of AD to the right tend to make the equilibrium quantity and price level higher or lower? What about a shift of AD to the left?

How would a dramatic increase in the value of the stock market shift the AD curve? What effect would the shift have on the equilibrium level of GDP and the price level?

If foreign wealth-holders decide that the United States is the safest place to invest their savings, what would the effect be on the economy here? Show graphically using the AD/AS model.
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free