In the aggregate demand-aggregate supply model, a decrease in income taxes can be illustrated by an
A)outward shift of the aggregate demand curve.
B)inward shift of the aggregate demand curve.
C)inward shift of the aggregate supply curve.
D)outward shift of the aggregate supply curve.

Question

Quizplus · Accepted Answer

A decrease in income taxes would put more money into consumers' pockets, increasing their disposable income and therefore increasing their consumption. This increase in consumption would cause an outward shift in the aggregate demand curve, as there is now more demand for goods and services at every price level.

In the Aggregate Demand-Aggregate Supply Model, a Decrease in Income