Question: How could you use the dynamic aggregate demandaggregate supply (AD/AS) framework to explain the impact of lower taxes on inflation and output in the economy?

How could you use the dynamic aggregate demandaggregate supply (AD/AS) framework to explain the impact of lower taxes on inflation and output in the economy?

You can think of the impact of lower taxes as an (aggregate supply/aggregate demand) shock. Such a shock would shift the (dynamic aggregate demand/short-run aggregate supply) curve to the (left/right). In the absence of other changes, this would put (upward/downward) pressure on output and (downward/upward) pressure on inflation.

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