Answer to Question #110236 in Macroeconomics for Agnes

Question

Assuming that the government decides to lower the level of production and employment caused by the covid 19 by cutting down taxes (personal income and corporate taxes) explain by the use of graph, the impact of such fiscal policy on aggregate output. In your explanation, describe the interaction between the money market is-lm and ad-as model

Answer 1

Such fiscal policy will increase aggregate demand, and as a result increase aggregate output.