Which of the following statements is correct?
A)A increase in people's expected future income shifts the aggregate demand curve leftward.
B)A tax increase shifts the aggregate demand curve leftward.
C)An increase in potential GDP shifts the aggregate demand curve rightward.
D)An increase in exports shifts the aggregate demand curve leftward.
E)The higher the price level, the larger is the quantity of real GDP demanded.

Question

Quizplus · Accepted Answer

A tax increase decreases disposable income, which in turn decreases consumption and aggregate demand, causing the aggregate demand curve to shift leftward.

Note: None of the other choices are correct. A increase in expected future income would shift the aggregate demand curve rightward; an increase in potential GDP would shift the long-run aggregate supply curve rightward, not the aggregate demand curve; an increase in exports would shift the aggregate demand curve rightward; and there is a negative relationship between the price level and the quantity of real GDP demanded (known as the aggregate demand curve), not a positive one.

Which of the Following Statements Is Correct