APMacro: Practice FRQ



The unemployment rate in the country of Southland is greater than the natural rate of unemployment. Using a correctly labeled graph of aggregate demand and aggregate supply, show the current equilibrium real gross domestic product and price level in Southland. The president of Southland is receiving advice from two economic advisers about how best to reduce unemployment in Southland. Kohelis advises the president to decrease personal income taxes. What is the effect of the change in tax policy? Raymond advises the president to take no policy action. What would eventually happen to the price level and output.



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