What will be the effect of tax reduction and increase ingovt expenditures on ad curve?

Answer 1

A tax reduction typically increases disposable income for consumers, leading to higher consumption and, consequently, a rightward shift of the aggregate demand (AD) curve. Simultaneously, an increase in government expenditures directly boosts demand for goods and services, further shifting the AD curve to the right. Together, these measures can stimulate economic growth, potentially increasing output and price levels in the short run.