In the short run, higher taxes will lead to a higher price level and a higher level of real GDP.

Question

Quizplus · Accepted Answer

Higher taxes lead to a reduction in disposable income and a lower level of consumption spending, which can cause a decrease in aggregate demand and therefore a lower level of real GDP. Additionally, higher taxes can increase production costs for businesses, leading to higher prices and potentially further reducing aggregate demand. Therefore, in the short run, higher taxes are generally expected to lead to lower real GDP and potentially higher prices.

In the Short Run, Higher Taxes Will Lead to a Higher