With an aid of AS-AD diagram, explain the effect on price level and output when consumption expenditure decreases in the short run and the government cuts taxes in the long run

When consumption expenditure decreases, the aggregate demand decreases. The price level will decrease and the output level will also decrease.

In the long run, when the government cuts taxes, the disposable income increases, consumption expenditure increases and thus the aggregate demand increases. The price level will increase and the output level will increase. Overall, the price level and the output level remain unchanged.