What effect will the exogenous tax cut have

Reference no: EM132141035

Question: Consider the Aggregate demand - Aggregate Supply model, suppose the economy begins in a short run equilibrium with output equal to potential output.

- Assume that prior to the exogenous tax cut, the government had a balanced budget and zero debt. If Ricardian equivalence were to hold, what effect will the exogenous tax cut have upon our AD-AS diagram? What happens to output and inflation in the short run equilibrium? Explain your reasoning.

Reference no: EM132141035

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