Explain how tax cuts can impact both aggregate demand and aggregate supply. Give an example of each
A tax cut can increase consumption or investment or both and can thus increase aggregate demand. For example, a cut in personal income taxes will give households more disposable income to spend.
In addition, when the marginal tax rates are cut, people will have an incentive to work more. As resources shift away from leisure toward work, short-run aggregate supply increases. If the lower marginal tax rates are permanent, most economists predict that both the short-run and the long-run AS curves will shift rightward.
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Which of the following will increase a perfectly competitive seller's short-run supply and shift the firm's short-run supply curve rightward?
A) an increase in the market price B) a decrease in average fixed costs C) a decrease in marginal cost D) Both answers A and B are correct. E) Both answers A and C are correct.
What is the voting paradox?
A) people are aware that their votes will not change the political outcome since these outcomes are predetermined by a group of influential politicians B) the observation that majority voting may not always result in consistent choices C) the observation that less than 60 percent of those eligible to vote actually vote D) the idea that wealthy corporations are able to sway politicians to act in ways contrary to the desires of the majority