An increase in business taxes is likely to reduce aggregate demand because of a decrease in private investment.

Question

Quizplus · Accepted Answer

An increase in business taxes reduces the after-tax profit margin of firms, reducing their incentive to invest in new projects and expansions. This leads to a decrease in private investment, which in turn suppresses aggregate demand as less is spent on consumer goods and services.

An Increase in Business Taxes Is Likely to Reduce Aggregate