aq11Feb2 - taxes [taxes minus transfers] More early...

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On your sheet of paper, write 1, 2, 3; alongside each put one or more of LAS, SAS, AD, with an arrow right or left, according to which of them will increase (arrow right) or decrease (arrow left) in each of the following situations: 1. Resolution of the Iraq crisis leads to both a sharp decrease in the price of oil and a large tax cut. Decrease in price of oil [an input] SAS Large tax cut => disposable income increases => consumption increases => AD 2. Social security is reformed, leading to more early retirements and an increase in net
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Unformatted text preview: taxes [taxes minus transfers] More early retirements => smaller labor force => reduced potential GDP, LAS , SAS Increase in net taxes => lower disposable income => less consumption expenditure, AD 3. The appearance and rapid spread of new epidemic viral diseases result in much lower incomes abroad and a decrease in US productivity. Lower income abroad => smaller eXports, AD Decrease in US productivity force => reduced potential GDP, LAS , SAS...
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