To find how much Aggregate Supply (AS) will decrease with a change in tax rates, follow these steps:
1. Determine the initial tax rate, which is 20 percent.
2. Determine the final tax rate after the increase, which is 30 percent.
3. Find the difference in the tax rates to determine the total percentage point increase. This is calculated as [tex]\(30\%\)[/tex] (final tax rate) minus [tex]\(20\%\)[/tex] (initial tax rate), resulting in a tax rate increase of [tex]\(10\)[/tex] percentage points.
4. Know that AS decreases by [tex]$50 billion for every 1 percentage point increase in tax rates.
5. Multiply the tax rate increase (in percentage points) by the decrease per percentage point to find the overall decrease in AS.
Let's calculate:
- The percentage point increase is \(30\% - 20\% = 10\).
- Since each percentage point increase in the tax rate decreases AS by $[/tex]50 billion, multiply [tex]\(10\)[/tex] by [tex]$50 billion.
So, the total decrease in AS is \(10 \times 50 = 500\) billion dollars.
Therefore, AS will decrease by $[/tex]500 billion.
