What are the effects of a change in taxes on consumption and aggregate demand?
A) If taxes increase, consumption increases and aggregate demand shifts right.
B) If taxes increase, consumption decreases and aggregate demand shifts left.
C) If taxes decrease, consumption increases and aggregate demand shifts left.
D) If taxes decrease, consumption decreases and aggregate demand shifts right.

Question

Quizplus · Accepted Answer

When taxes increase, people have less disposable income, which reduces consumption as people have less money to spend on goods and services. This reduction in consumption leads to a decrease in aggregate demand as the total amount of goods and services demanded decreases. Therefore, if taxes increase, consumption decreases and aggregate demand shifts left.

What Are the Effects of a Change in Taxes on Consumption