Suppose an economy is in equilibrium. Also suppose that consumer expectations change as the threat of war increases the likelihood of an increase in taxes. This would result in:
A) an increase in equilibrium income.
B) no change in equilibrium income.
C) a downward shift of the aggregate supply curve.
D) a decrease in equilibrium income.
E) a change in the slope of the aggregate supply curve.

Question

Quizplus · Accepted Answer

A change in consumer expectations that indicates a potential increase in taxes would lead to a decrease in consumption and a leftward shift of the aggregate demand curve. This would result in a lower equilibrium income.

Suppose an Economy Is in Equilibrium