Tax Cut Shifts Aggregate Supply Rightward

Steps:

• Lower taxes on firms' land and buildings reduce production costs.
• Reduced costs encourage firms to produce more output.
• This shifts the short-run aggregate supply curve rightward.
• Rightward shift lowers equilibrium price level and raises real output.

Why B is correct:

• In the AD-AS model, a rightward supply shift decreases prices while increasing output, as lower costs expand production without demand pressure.

Why the others are wrong:

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

Final answer: B