Consider the Following News Headline: "Government Follows Through on Election

Multiple Choice

Consider the following news headline: "Government follows through on election promise-cuts income-tax rate by 5 percentage points." Assuming that aggregate output is demand-determined,what will be the effect of this action,all other things equal,on the AE function and on equilibrium national income?

A) The AE function will shift down parallel to itself,and equilibrium national income will fall.
B) The AE function will rotate upward (become steeper) ,and equilibrium national income will rise.
C) The AE function will rotate downward (become flatter) ,and national income will fall.
D) The AE function will shift up parallel to itself,and equilibrium national income will rise.
E) There will be no change in the AE function or in equilibrium national income.