If an economy is operating on the Keynesian range of the short-run aggregate supply curve, which of the following will lead to a decrease in the equilibrium output?
A) Consumers' expectations about future income increase.
B) The money supply increases.
C) The federal income tax increases.
D) Government spending increases.

Question

Quizplus · Accepted Answer

In the Keynesian range of the short-run aggregate supply curve, the economy is below full employment, and output can be increased without causing inflation. An increase in federal income tax reduces consumers' disposable income, leading to a decrease in consumption and thus a decrease in aggregate demand. This results in a decrease in equilibrium output. Choices A, B, and D would typically increase aggregate demand, leading to an increase in equilibrium output.

If an Economy Is Operating on the Keynesian Range of the Short-Run