How does the aggregate demand and supply model reflect an increase in taxes?
A) Consumption increases, so aggregate demand shifts right.
B) Consumption increases, so aggregate supply shifts right.
C) Consumption decreases, so aggregate demand shifts left.
D) Consumption decreases, so aggregate supply shifts left.

Question

Quizplus · Accepted Answer

An increase in taxes reduces disposable income and, therefore, reduces consumption spending. This decrease in consumption leads to a decrease in aggregate demand, resulting in a leftward shift of the aggregate demand curve.

How Does the Aggregate Demand and Supply Model Reflect an Increase