If consumption is a direct function of disposable income,what would an increase in personal taxes do?
A)decrease both consumption and aggregate demand
B)decrease net exports
C)decrease consumption but not aggregate demand
D)increase consumption but not aggregate demand

Question

Quizplus · Accepted Answer

An increase in personal taxes leads to a decrease in disposable income, which in turn, leads to a decrease in consumption. As consumption is a component of aggregate demand, a decrease in consumption leads to a decrease in aggregate demand as well. Therefore, both consumption and aggregate demand decrease in this scenario.

If Consumption Is a Direct Function of Disposable Income,what Would