An increase in the effective tax rate on capital would cause the IS curve to
A)shift up and to the right.
B)shift down and to the left.
C)remain unchanged.
D)remain unchanged if taxes are fully deductible from income; otherwise, shift up and to the right.

Question

Quizplus · Accepted Answer

An increase in the effective tax rate on capital would increase the cost of investment, which would lead to a decrease in investment and a decrease in aggregate demand. This would cause the IS curve to shift down and to the left.

An Increase in the Effective Tax Rate on Capital Would