No Bull Economics Lessons

Macroeconomics & Microeconomics Concepts You Must Know

AD/AS and Fiscal Policy (10 of 10)

Question 10:
When business taxes fall, real gross domestic product increases as a result of increase(s) in

A.  the supply of money curve
B.  the aggregate supply curve only
C.  aggregate supply and aggregate demand curves
D.  the aggregate demand curve only
E.  the marginal propensity to save

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Correct Answer: C, aggregate supply and aggregate demand curves. A decrease in business taxes causes more gross investment which will shift aggregate demand to the right. Also, a decrease in business taxes lowers the costs of production and will shift the short-run aggregate supply to the right.