-In the above figure, the economy is initially at point B. If taxes increase, there is A) a shift to AD₁. B) a shift to AD₂. C) a movement to point C. D) a movement to point A.

Question

Quizplus · Accepted Answer

An increase in taxes typically reduces disposable income, leading to a decrease in consumption and aggregate demand, causing a leftward shift in the aggregate demand curve to AD₂.

-In the Above Figure, the Economy Is Initially at Point