Question

Consider a tax cut which affects not only consumer disposable​ income, but also afterminus−tax earnings from labor supplied to labor markets and from financial assets acquired through saving. in the long run we would expect this tax cut to

a. increase the price level.
b. increase both the price level and the level of real gdp.
c. increase the level of real gdp.
d. decrease both the price level and increase real gdp.

Answer 1

in the long run we would expect this tax cut to C. increase the level of real GDP.
Tax cut will give the private sectors more resources to either increase the number of employees or buy materials for production.
Either decision will lead to an increase in overall productivity which will contribute to additional Gross Domestic Products.