A decrease in personal and business taxes will cause government spending and aggregate demand
to decrease.

Question

Quizplus · Accepted Answer

A decrease in personal and business taxes will leave individuals and businesses with more disposable income, which can result in increased spending and investment. This increase in demand can lead to economic growth and possibly higher employment. However, it can also result in inflationary pressures, which the government may have to counteract with higher interest rates, thereby decreasing aggregate demand. In any case, the decrease in taxes will not directly cause government spending to decrease.

A Decrease in Personal and Business Taxes Will Cause Government