Assignment Solution: Economic Impact of Lower Corporate Tax Rate

A corporate tax cut should increase investment spending. This increase will increase aggregate demand (Keynesian perspective) and increase aggregate supply (Neoclassical perspective), both of which will tend to increase the equilibrium level of real GDP. What happens to the aggregate price level depends on which curve shifts more. Probably the AD curve shifts more in the short term, which means the the price level will likely increase.

image showing AS and AD both moving outwards, causing Price to increase and quantity to increase.