10 President Trump sought to increase economic growth by cut

10. President Trump sought to increase economic growth by cutting taxes and reducing regulation of production. How did these two initiatives affect the AS and AD curves? LO8-4

Solution

In order to increase output, governments use fiscal policy measures like reducing tax rates so that the individuals have enough money which would be invested back to earn more money. The reduction in tax rates increases employment level thereby increasing the aggregate demand for finished goods. Reduction of regulation of production motivates firms to produce more which increases aggregate supply. So the monetary policy increases aggregate supply and reduction of regulation of production supports to increase aggregate supply thereby shifting the AD and AS curve to right side of the graph.