One supply-side measure introduced by the Reagan administration was a cut in income tax rates. Use an aggregate demand-supply diagram to show what the effect was intended. What might happen if such a tax cut also generated a change in aggregate demand?

Draw your supply and demand curves; y axis has general price levels, x axis has GDP. Increase supply (lower taxes leads to greater incentives to work leading to greater output at any given price level. ) What happens to the price level, what happens to GDP?

Now make a case for aggregate demand. (It could shift out as people have more disposable income. This is offset by an an inward shift a government cuts back spending as tax receipts fall). What happens to price, what happens to GDP?

  1. 👍
  2. 👎
  3. 👁

Respond to this Question

First Name

Your Response

Similar Questions

  1. Social Studies Help PLEASE CHECK!!

    The citizens of a small city have been eager to see more green space in their environment. There are several abandoned lots that activists think could be turned into community gardens or parks for people to freely enjoy. Use the

  2. CIVICS!!!

    Brie's dad said that a state income tax would help the financial crisis by balancing the budget. Which would be the most effective way for Brie's dad to contribute his ideas to a plan for balancing the state budget? A. He should

  3. American History

    Which are true about the Iran-Contra Affair? Select all that apply. A.The United States sold arms to Iran and funneled those profits to the anticommunist Contras in Nicaragua. B. The Reagan administration violated official US

  4. economics

    An increase in personal income tax rates will cause a(n)

  1. Economics

    1) In which of the following situations would someone have to pay a gift tax? A. A relative dies and leaves you $13,000 in the will. B. Your cousin gives you a car worth $1,700. C. Your grandmother gives you $13,000 toward


    Suppose you are a typical person in the U.S. economy. You pay 4 percent of your income in state income tax and 15.3 percent of your labor earnings in federal payroll taxes (employer and employee shares combined). You also pay

  3. economics

    why might one person work more, earn more, and pay more income tax when his or her tax rate is cut, while another person will work less earn less, and pay less income taxes under the same circumstances

  4. math

    3. The gross income of David Vaughn is $785 per week. His deductions are $42.25, FICA tax; $90.33, income tax; 2% state tax; 1% city tax; and 3% retirement fund. What is her net income for one week? A. $675.32 B. $628.77 [C.

  1. Economics

    Which one of the following statements is correct under the theory of supply-side economics? A. High marginal tax rates severely discourage work, saving, and investment. B. Transfer payments increase incentives to work. C.

  2. Math

    Please match the following 3 terms to their definitions. Deduction Taxable Income Tax Credit The amount of income used to calculate how much tax an individual owes the government. (Taxable Income) Any item or expenditure

  3. Macroeconomic Help please

    1)Which of the following represent expansionary fiscal policy? A. an increase in average individual income tax rates B. an increase in marginal individual income tax rates C. a cut in corporate income tax rates 2)The amount of

  4. Economics

    The marginal tax rate is defined as the extra taxes paid on additional income divided by the increase in income. Calculate the marginal tax rate for the proportional tax system as income rises from $50,000 to $100,000. Calculate

You can view more similar questions or ask a new question.