Refer to the Graph Above

Multiple Choice

Refer to the graph above. If the economy is initially at equilibrium at the intersection of AD₁ and AS₁ and there is a tax cut, then, from a skeptical mainstream perspective, the immediate impact is that aggregate:

A) Demand would increase to AD₂ and aggregate supply would increase to AS₂
B) Demand would increase to AD₂ and aggregate supply would remain at AS₁
C) Supply would increase to AS₂ and aggregate demand would remain at AD₁
D) Demand would remain at AD₁ and aggregate supply would remain at AS₁