Other things being equal, a reduction in taxes will
A)lead to a reduction in the long run aggregate supply curve as businesses enjoy greater profits.
B)influence the short run aggregate supply curve but not the aggregate demand curve.
C)lead to a corresponding reduction in interest rates increasing the crowding out effect.
D)cause an increase in aggregate demand due to increases in consumption, investment, or net exports.

Question

Quizplus · Accepted Answer

A reduction in taxes increases disposable income and therefore leads to an increase in consumption, investment, or net exports. This results in an increase in aggregate demand, shifting the AD curve to the right.

Other Things Being Equal, a Reduction in Taxes Will