The aggregate demand curve will shift to the right ________ the initial decrease in taxes.
A) by less than
B) by more than
C) by the same amount
D) sometimes by more than and other times by less than

Question

Quizplus · Accepted Answer

When taxes decrease, households have more disposable income, which they can use to buy more goods and services. This results in an increase in consumption expenditure, which is a component of aggregate demand. Hence, the aggregate demand curve shifts to the right by more than the initial decrease in taxes.

The Aggregate Demand Curve Will Shift to the Right ________