Taxes affect aggregate demand indirectly by changing the disposable income of households, which alters consumption.

Name: Taxes affect aggregate demand indirectly by changing the disposable income of households, which alters consumption.
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Question

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Taxes, particularly income taxes, reduce the disposable income of households. When households have less disposable income, they tend to spend less, which reduces consumption and ultimately affects aggregate demand.

Taxes Affect Aggregate Demand Indirectly by Changing the Disposable Income