-In the above figure, if the economy is initially at point B and taxes are raised while potential GDP does not change, then the economy will
A) move to point C.
B) move to point A.
C) move to point D.
D) stay at point B.

Question

-In the above figure, if the economy is initially at point B and taxes are raised while potential GDP does not change, then the economy will
A) move to point C. 
B) move to point A. 
C) move to point D. 
D) stay at point B.

Quizplus · Accepted Answer

Raising taxes reduces consumers' disposable income, leading to a decrease in consumer spending. This decrease in spending shifts the aggregate demand curve to the left, moving the economy from point B to point A, where there is lower output and potentially higher unemployment, but not necessarily a change in the price level.

-In the Above Figure, If the Economy Is Initially at Point