The AD-AS model can be used to analyze the effects of fiscal policy, including changes in government spending or taxes. Suppose Congress votes to decrease corporate income tax rates. Use the AD/AS model to analyze the likely impact of the tax cuts on the macroeconomy. Show graphically and explain your reasoning. What exactly causes AD and/or AS to shift? What happens to GDP and the aggregate price level? Why?
|Explain the Keynesian perspective on tax cuts and show graphically.||4
|Explain the Neoclassical Perspective on tax cuts and show graphically.||4|
|Explain the effect of tax cuts on GDP. Show graphically.||4|
|Explain the effect of tax cuts on the price level. Show graphically.||4|
|Write up your analysis using correct language, explaining all your work.||4|