Business taxes fall.This raises __________,which raises __________ and the __________ curve shifts rightward.
A) consumption; aggregate demand (AD); AD
B) investment; government purchases; AD
C) investment; aggregate demand (AD); AD
D) net exports; aggregate demand (AD); AD
E) none of the above

Question

Quizplus · Accepted Answer

When business taxes fall, it increases investment as businesses have more after-tax profits to invest. This in turn raises aggregate demand (AD) as investment is one of the components of AD. Therefore, the AD curve shifts rightward. The other options are not directly impacted by a reduction in business taxes.

Business Taxes Fall