a-government-decides-to-cut-taxes-during-a-recession-how-is-this-likely-to-affec

Question

A government decides to cut taxes during a recession. How is this likely to affect the economy according to the dynamic AD-AS model?

Accepted Answer

It will increase aggregate demand and help move the economy towards long-run equilibrium.

Answer

It will decrease aggregate demand and worsen the recession.

Answer

It will increase inflation without affecting aggregate demand.

Answer

It will have no effect on aggregate demand.