Suppose Congress votes to decrease corporate income tax rates. Use the AD/AS model to analyze the likely impact of the tax cuts on the macroeconomy.

Impact of Lower Corporate Tax Rate

Discussion Topic:

Suppose Congress votes to decrease corporate income tax rates. Use the AD/AS model to analyze the likely impact of the tax cuts on the macroeconomy. Show graphically and explain your reasoning. What exactly causes AD and/or AS to shift? What happens to GDP and the aggregate price level? Why?

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Answer preview……….

In this scenario, I assumed a situation where Congress votes to reduce the corporate taxation rate in the country. Such a move would mean that corporations would be required to pay income taxes on their revenues at a lower percentage than the current tax rate. Using the AD/AS model, one can come up with some of the impacts that lower corporate tax rates would have on the macro-economy. When taxes are reduced, the supply side increases meaning that the aggregate supply in the economy will increase (Ferri, 2016). The supply will increase in such a high rate that the amount of income that is collected in the form of income taxes would increase. The image below shows the shift in aggregate supply that would happen if the corporate income tax rates were to be reduced by Congress…………

APA 328 words