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Economics (AS & A Level) · Oct / Nov 2024 · Paper 11 · Question 20

9708Fiscal policy

A government makes two changes to income tax. 1 The individual tax-free income allowance is increased. 2 The marginal rate of income tax is decreased. How will these changes affect aggregate demand and aggregate supply in the economy?

  1. Aaggregate demand decrease; aggregate supply increase
  2. Baggregate demand decrease; aggregate supply unchanged
  3. Caggregate demand increase; aggregate supply increase
  4. Daggregate demand increase; aggregate supply unchanged

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Correct answer: C. aggregate demand increase; aggregate supply increase

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