Figure 9.1 shows three aggregate demand curves. A movement from curve AD2 to curve AD1 could be caused by a(n)
A) increase in the money supply.
B) increase in taxes.
C) increase in the price level.
D) increase in government spending.

Question

Figure 9.1 shows three aggregate demand curves. A movement from curve AD2 to curve AD1 could be caused by a(n) 
A) increase in the money supply.
B) increase in taxes.
C) increase in the price level.
D) increase in government spending.

Quizplus · Accepted Answer

An increase in taxes reduces consumers' disposable income, leading to a decrease in consumer spending. This decrease in spending would shift the aggregate demand curve to the left, from AD2 to AD1, indicating a reduction in the overall demand for goods and services at every price level.

Figure 91 Shows Three Aggregate Demand Curves