Raising taxes as an element of discretionary fiscal policy is intended to reduce aggregate demand, but it can also reduce aggregate supply if
A) the higher taxes lead workers to seek out a second job.
B) the higher taxes cause workers to work less.
C) the government purchases goods with the additional revenue.
D) the government uses the additional revenue to retire some of the federal debt.
E) the higher taxes cause people to save less.

Question

Quizplus · Accepted Answer

If higher taxes cause workers to work less, then there will be a decrease in aggregate supply as fewer goods and services will be produced in the economy.

Raising Taxes as an Element of Discretionary Fiscal Policy Is