Suppose a country is in the midst of an economic boom and is running large budget surpluses. The prime minister suggests that due to the good economic conditions, the time is ripe for a large tax cut. In this case, a tax cut will:

Instructions: You may select more than one answer.

a) push AD to the right and increase output.

b) increase the price level and costs.

c) eventually cause a leftward shift of SRAS.

d) push AD to the left and decrease output.

e) decrease the price level and costs.

f) eventually cause a rightward shift of SRAS.

g) eventually cause a rightward shift of LRAS.

Suppose a country is in the midst of an economic boom and is running large budget surpluses. The prime minister suggests that due to the good economic conditions, the time is ripe for a large tax cut. In this case, a tax cut will:

a) Push AD to the right and increase output.

b) Increase the price level and costs.

Explanation:

When countries face economic boom that is they face high rates of economic growth, they economy experiences high budget surpluses. As a result of the same many economists propose the government to reduce taxes because it is during this time only that a country may experience a strong financial position and may be able to reduce taxes.

The prime minister suggests that due to the good economic conditions, the time is ripe for a large tax cut. In this case, a tax cut will:

a) Push AD to the right and increase output.

b) Increase the price level and costs.