When taxes increase, consumption decreases. How is this situation represented in the aggregate demand and aggregate supply model?
A)by a movement to the left along a given aggregate demand curve
B)by shifting aggregate demand to the left
C)by shifting aggregate supply the left
D)by a movement to the right along the aggregate demand curve

Question

Quizplus · Accepted Answer

When taxes increase, disposable income decreases, which leads to a decrease in consumption. This decrease in consumption shifts the aggregate demand curve to the left. Therefore, choice B is the correct answer.

When Taxes Increase, Consumption Decreases