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(3) If current real GDP is above potential real GDP, a reduction in income taxes will lead primarily to inflation and will ca

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Answer #1

a) true as beyond the potential GDP the economy is in the inflationary gap, increasing the demand by reducing the taxes will not have much effect on increasing the demand in the market.

b) False, the prices, wages and other factor are equally sticky in there way up and down. it will take the same time.

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