Suppose there is a decrease in expected future taxes. This will cause which of the following to occur?
A) The IS curve to shift left in the current period.
B) The IS curve to shift right in the current period.
C) The LM curve to shift up in the current period.
D) The LM curve to shift down in the current period.
E) Both the IS and LM curves to shift right in the current period.

Question

Quizplus · Accepted Answer

A decrease in expected future taxes increases consumers' expectations of their future disposable income, leading to an increase in current consumption and investment. This raises the aggregate demand, shifting the IS curve to the right in the current period.

Suppose There Is a Decrease in Expected Future Taxes