When taxes increase, consumption
A) increases, so aggregate demand shifts right.
B) increases, so aggregate supply shifts right.
C) decreases, so aggregate demand shifts left.
D) decreases, so aggregate supply shifts left.

Question

Quizplus · Accepted Answer

When taxes increase, people have less disposable income to spend on goods and services, leading to a decrease in consumption. This decrease in consumption leads to a decrease in aggregate demand, as less goods and services are being demanded. Therefore, choice C is correct. Choices A and B are incorrect as they suggest that taxes increasing leads to an increase in consumption, which is not the case. Choice D is incorrect as taxes increasing does not directly affect aggregate supply.

When Taxes Increase, Consumption