A tax increase
A)increases the quantity of real GDP demanded and there is a movement down along the AD curve.
B)does not shift or lead to a movement along the aggregate demand curve.
C)decreases aggregate demand and the AD curve shifts leftward.
D)increases aggregate demand and the AD curve shifts rightward.
E)decreases the quantity of real GDP demanded and there is a movement up along the AD curve.

Question

Quizplus · Accepted Answer

A tax increase reduces disposable income, which decreases consumption spending, investment, and net exports. This leads to a decrease in aggregate demand and a leftward shift of the AD curve. It does not increase the quantity of real GDP demanded or shift the AD curve to the right.

A Tax Increase