If the government decreases the income tax rate, then:

Question

Quizplus · Accepted Answer

When the government decreases the income tax rate, individuals have more disposable income to spend, which increases consumption. This increase in consumption leads to an increase in aggregate demand, which shifts the AD curve to the right. This increase in demand will lead to an increase in GDP and potentially inflation, depending on whether the economy is already operating at full capacity.

If the Government Decreases the Income Tax Rate, Then