-Refer to Figure 15-7.If the economy is currently at a price level of 120 and real GDP is $6.5 trillion,an increase in taxes will,in the short run,
A) shift the aggregate demand curve rightward,increasing both the price level and real GDP
B) shift the aggregate demand curve leftward,decreasing both the price level and real GDP
C) shift the aggregate supply curve upward,increasing the price level and decreasing real GDP
D) shift the aggregate supply curve downward,decreasing the price level and increasing real GDP
E) have no effect on aggregate demand because of crowding out

Question

-Refer to Figure 15-7.If the economy is currently at a price level of 120 and real GDP is $6.5 trillion,an increase in taxes will,in the short run,
A) shift the aggregate demand curve rightward,increasing both the price level and real GDP 
B) shift the aggregate demand curve leftward,decreasing both the price level and real GDP 
C) shift the aggregate supply curve upward,increasing the price level and decreasing real GDP 
D) shift the aggregate supply curve downward,decreasing the price level and increasing real GDP 
E) have no effect on aggregate demand because of crowding out

Quizplus · Accepted Answer

An increase in taxes reduces consumers' disposable income, leading to a decrease in consumption. This causes the aggregate demand curve to shift leftward, resulting in a lower price level and reduced real GDP in the short run.