-In the figure above, if income taxes increase,
A) the AE curve becomes steeper.
B) there is a movement rightward along the unchanged AE curve.
C) there is a movement leftward along the unchanged AE curve.
D) the AE curve becomes flatter.

Question

-In the figure above, if income taxes increase,
A) the AE curve becomes steeper. 
B) there is a movement rightward along the unchanged AE curve. 
C) there is a movement leftward along the unchanged AE curve. 
D) the AE curve becomes flatter.

Quizplus · Accepted Answer

An increase in income taxes reduces disposable income, leading to a decrease in consumption. This causes the AE (Aggregate Expenditure) curve to become flatter, as the slope of the AE curve is determined by the marginal propensity to consume, which decreases with higher taxes.

-In the Figure Above, If Income Taxes Increase