What happens to the aggregate demand curve when net taxes increase and government purchases decrease?
A) The aggregate demand curve shifts rightward.
B) The aggregate demand remains the same.
C) The aggregate demand curve shifts leftward.
D) A downward movement occurs along the aggregate demand curve.

Question

What happens to the aggregate demand curve when net taxes increase and government purchases decrease?  
A) The aggregate demand curve shifts rightward. 
B) The aggregate demand remains the same. 
C) The aggregate demand curve shifts leftward. 
D) A downward movement occurs along the aggregate demand curve.

Quizplus · Accepted Answer

An increase in net taxes and a decrease in government purchases represent a contractionary fiscal policy, which reduces aggregate demand. This means that the aggregate demand curve shifts leftward.

What Happens to the Aggregate Demand Curve When Net Taxes