Long-run aggregate supply than on aggregate demand

Reference no: EM13695961

How will output and inflation in both the short run and the long run be affected if the effects of the tax cuts are stronger on long-run aggregate supply than on aggregate demand?

Both the Y* (potential output) and AD curves will shift to the left, so output will fall and inflation will be higher.

The Y* (potential output) curve will shift to the right less than the AD curve, so output will increase and inflation will be higher.

The Y* (potential output) curve will shift to the right more than the AD curve, so output will increase and inflation will be lower.

The Y* (potential output) curve will shift to the right and the AD curve will shift to the left, so output will be the same and inflation will be lower.

Reference no: EM13695961

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