When drawn against the real interest rate, the output demand curve unambiguously shifts to the right if either or both of the following occur.
A) an increase in current taxes and an increase in future taxes
B) an increase in current taxes and a decrease in future taxes
C) a decrease in current taxes and an increase in future taxes
D) a decrease in current taxes and a decrease in future taxes
E) an increase in current taxes and a reduction in interest rates

Question

Quizplus · Accepted Answer

A decrease in current taxes and a decrease in future taxes both lead to an increase in disposable income, causing an increase in consumption spending and thus a rightward shift in the output demand curve. The other choices do not involve changes in disposable income or interest rates, which are the main determinants of the position of the output demand curve.

When Drawn Against the Real Interest Rate, the Output Demand