Question

C. What would happen to these variables and the AD/AS graph if we had a corporate tax cut of 100 billion instead?

Answer 1

AS A RESULT OF CORPORATE TAX CUT THE AGGEREGATE DEMAND CURVE SHIFTS TO THE RIGHT. BECAUSE CORPORATE TAX CUT INCREASES AGGREGATE DEMAND AND THE RETAINED PROFITS OF BUSINESS GROUP WHICH CAN BE USED FOR EXPANSION.

THE AGGREGATE SUPPLY CURVE SHIFTS TO THE RIGHT AS A RESULT OF CORPORATE TAX CUT. BECAUSE,IT INCREASES CAPITAL FORMATION BY ENHANCING CAPITAL SPENDING. IT WILL REDUCE THE PRICE OF GOODS.

             AS A CONCLUSION WE CAN SAY THAT, A CORPORATE TAX CUT OF 100 BILLION WILL HAVE A MULTIPLIER EFFECT BOTH ON THE DEMAND AND SUPPLY SIDE LEADING TO MORE THAN 100 BILLION GROWTH OF OUTPUT IN THE ECONOMY.