PRICE LEVEL 170 350 100 8 90 B 30 20 OUTPUT Aggregate Demand 40 50 Aggregate Demand Suppose the govemments of two very similar economies, economy N and economy M, implement a permanent tax cut of equal size. Investment spending in economy N is less sensitive to changes in the interest rate than investment spending in economy M. The economies are otherwise completely identical. The tax cut will have a smaller impact on aggregate demand in the economy with the
PRICE LEVEL 170 350 100 8 90 B 30 20 OUTPUT Aggregate Demand 40 50 Aggregate Demand Suppose the govemments of two very similar economies, economy N and economy M, implement a permanent tax cut of equal size. Investment spending in economy N is less sensitive to changes in the interest rate than investment spending in economy M. The economies are otherwise completely identical. The tax cut will have a smaller impact on aggregate demand in the economy with the
Chapter11: Managing Aggregate Demand: Fiscal Policy
Section: Chapter Questions
Problem 3TY
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Transcribed Image Text:PRICE LEVEL
8
170
310
100
8
90
30
20
OUTPUT
Aggregate Demand
40
50
10
Aggregate Demand
Suppose the govemments of two very similar economies, economy N and economy M, implement a permanent tax cut of equal size. Investment
spending in economy N is less sensitive to changes in the interest rate than investment spending in economy M. The economies are otherwise
completely identical.
The tax cut will have a smaller impact on aggregate demand in the economy with the
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