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Compare the effect on the price level and real GDP of a decrease in tax rates assuming a
supply-‐‑side effect versus no supply-‐‑side effect. Compared to no supply-‐‑side effect, including a
supply-‐‑side effect for the decrease in tax rates will cause the price level to increase ________ and
real GDP to increase ________.
A) less; less
B) less; more
C) more; less
D) more; more

Respuesta :

namrata421

The price level will rise less and real GDP will rise more as a result of the supply-side effect of the reduction in tax rates.

How is it possible for an expansionary fiscal policy to raise real GDP while bringing down prices?

Expanding government spending, lowering taxes, or increasing government transfers are examples of expansionary fiscal policy instruments. Any of these actions will raise the level of prices, employment, and aggregate demand.

What happens when taxes are cut while spending by the government rises?

When the government adopts an expansive policy, lowers tax rates, and boosts spending on goods and services, the economy is likely to experience an increase in both income and spending. However, expansionary fiscal policy is debatable because it is likely to raise the level of public debt.

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