We know that when an economy starts out at long-run equilibrium and the government cuts taxes, this will result in inflation in the long run. What happens if the economy is producing a level of output below the full employment (long-run equilibrium) level and the government cuts taxes?

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28 Sep 2019

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We know that when an economy starts out at long-run equilibrium and the government cuts taxes, this will result in inflation in the long run. What happens if the economy is producing a level of output below the full employment (long-run equilibrium) level and the government cuts taxes?

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