Tax Cut on Property Boosts Aggregate Supply

Steps:

• Reducing taxes on land and buildings lowers production costs for firms.
• Lower costs incentivize more investment and construction activity.
• This shifts the short-run aggregate supply (SRAS) curve rightward.
• Rightward SRAS shift raises real output while lowering the price level.

Why B is correct:

• In the AD-AS model, a rightward SRAS shift increases equilibrium output (Y) and decreases equilibrium price level (P), as more goods are supplied at lower prices.

Why the others are wrong:

• A: Output rises due to expanded supply, not falls.
• C: Price level falls from increased supply, and output rises, not falls.
• D: Price level falls with greater supply, not rises.

Final answer: B