Question

At p1y1, if taxes decrease then consumer spending will decrease and ad will shift right to long-run equilibrium. decrease and ad will shift left to long-run equilibrium. increase and ad will shift right to long-run equilibrium. increase and ad will shift left to long-run equilibrium. cannot be determine with information given.

Answer 1

Answer: Increase and ad will shift right to long-run equilibrium.

Explanation: A decrease in Taxes lead to an increase in the disposable income of the consumers. This results in higher consumer spending at the given income levels. As a result the AD curve shifts to the right towards the long run equilibrium level.