The aggregate demand curve will shift to the right ________ the initial decrease in taxes.
A)by less than
B)by more than
C)by the same amount as
D)sometimes by more than and other times by less than

Question

Quizplus · Accepted Answer

A decrease in taxes will lead to an increase in disposable income, which will increase consumption and therefore increase aggregate demand. The extent of the shift to the right will depend on the magnitude of the tax cut and the size of the spending multiplier. However, in general, the shift will be greater than the initial decrease in taxes because of the multiplier effect.

The Aggregate Demand Curve Will Shift to the Right ________