If taxes are increased, the AD curve
A) is not affected because a change in taxes is a nominal change not real change.
B) shifts rightward and aggregate demand decreases.
C) shifts leftward and aggregate demand decreases.
D) does not shift but there is a movement down along the curve.

Question

Quizplus · Accepted Answer

An increase in taxes reduces consumers' disposable income, leading to a decrease in consumer spending. This results in a leftward shift of the Aggregate Demand (AD) curve, indicating a decrease in aggregate demand.

If Taxes Are Increased, the AD Curve