Following Keynesian economics, and assuming a marginal propensity to consume (MPC) of 0.75, an increase in taxes of $100 billion would be expected to shift the aggregate demand curve by $300 billion to the left.

Question

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According to the Keynesian multiplier effect, the tax multiplier is calculated as -MPC/(1-MPC). With an MPC of 0.75, the tax multiplier is -3. Therefore, a $100 billion increase in taxes would decrease aggregate demand by $300 billion.

Following Keynesian Economics, and Assuming a Marginal Propensity to Consume