In the aggregate demand-aggregate supply model, everything else remaining unchanged, an increase in taxes causes the____ curve to shift_____ .
A)short-run aggregate-supply; right
B)short-run aggregate-supply; left
C)aggregate-demand; left
D)aggregate-demand; right

Question

Quizplus · Accepted Answer

An increase in taxes decreases disposable income which leads to lower consumption spending, thereby decreasing overall demand in the economy. This shift in demand causes a leftward shift in the aggregate-demand curve.

In the Aggregate Demand-Aggregate Supply Model, Everything Else Remaining Unchanged