Figure 34-5 -Refer to Figure 34-5. An increase in taxes will A)shift aggregate demand from AD₁ to AD₃. B)shift aggregate demand from AD₁ to AD₂. C)cause movement from point C to point D along AD₁. D)have no effect on aggregate demand.

Question

Quizplus · Accepted Answer

An increase in taxes reduces consumers' disposable income, leading to a decrease in consumer spending. This decrease in spending shifts the aggregate demand curve to the left, from its initial position to a new position, indicating a reduction in the total demand for goods and services in the economy at every price level.

Figure 34-5 ​

Figure 34-5