Question

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

Answer 1

Increase, Increase.

Step-by-step explanation:

The real GDP “Increases” and the price level “ increases” because the reduction in the tax rate will increase the purchasing power and then people will consume more. Thus, the aggregate demand rises and this rise in the aggregate demand will shift the demand curve rightwards. Resulting in an increase in the price and real GDP increase because the new market equilibrium will be above the old equilibrium.