GDP and taxes?

Question

Considering the factors that determine the underground economy in the U.S., assume
that higher levels of income tax decrease GDP and that while holding government
expenditures constant, increased income taxes reduce consumption expenditures, and
that government surpluses increase national savings so the government doesn't have to
borrow your savings to operate and, therefore, that higher taxes contribute to economic
growth. Are higher taxes a short-run versus long-run issue? Explain.

Answer 1

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