Consider a tax cut which affects not only consumer disposable ...

[Sportsfan2111]

Consider a tax cut which affects not only consumer disposable income, but also after-tax earnings from labor supplied to labor markets and from financial assets acquired through saving. In the long run we would expect this tax cut to
 
  A) increase both the price level and the level of real GDP.
  B) decrease both the price level and increase real GDP.
  C) increase the price level.
  D) increase the level of real GDP.

Question 2

How is a long-run average cost curve different from a short-run average cost curve? How are they related?
 
  What will be an ideal response?

[ynlevi]

Answer to Question 1

D

Answer to Question 2

The short-run average cost curve assumes a given plant size (or some other fixed cost), whereas the long-run average cost curve assumes no fixed scale of plant. The long-run average cost curve is the lower envelope of a series of short-run average cost curves.