If taxes rise more than expected, then the shift to the _____ by AD will be _____ than the shift to the _____ by AS in the short run.
A) left, greater, right
B) left, less, right
C) right, greater, left
D) right, less, left

Question

Quizplus · Accepted Answer

When taxes rise more than expected, disposable income decreases, leading to a reduction in consumption and investment. This causes the Aggregate Demand (AD) curve to shift to the left. In the short run, the Aggregate Supply (AS) might not adjust immediately or by a significant amount, making the shift in AD more pronounced than any shift in AS.

If Taxes Rise More Than Expected, Then the Shift to the _____