In the aggregate demand-aggregate supply model, everything else remaining unchanged, an increase in taxes causes ____to _____in the short run.
A)output; increase
B)output; decline
C)output; remain unchanged
D)government spending; increase

Question

Quizplus · Accepted Answer

An increase in taxes will decrease disposable income and decrease consumption, which will lead to a shift to the left in the aggregate demand curve. This will lead to a decrease in both output and price level in the short run.

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