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When the business registration fees is waived, the incentive for investment increases, so the investment expenditure increases, and thus the aggregate demand increases. Also, when there is a salaries tax allowance, the disposable income increases, so the consumption expenditure increases, and thus the aggregate demand increases. The price level and the output level will increase in the short run.
The inflationary gap will result in an upward pressure on the input prices. In the long run, wages will adjust upward and the SRAS will decrease. The price level will increase and the output will restore to its original level.
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