AP Macroeconomics 3.1: Aggregate Demand

(e) 2 points:
•
One point is earned for stating that aggregate demand will increase and for explaining that lower
income tax rates will increase disposable income and/or consumption and investment.
•
One point is earned for stating that long-run aggregate supply will stay the same because lowering
income taxes will increase consumption and/or investment, or there is no change in inputs.
OR
One point is earned for stating that long-run aggregate supply will increase in the long run because
lowering taxes will increase savings and investment in physical capital, or because of increased
incentives to work.
OR
One point is earned for stating that long-run aggregate supply will decrease in the long run because lowering taxes leads to a crowding out of private investment.

AP® MACROECONOMICS