Aggregate demand shifts left if
A)taxes rise and shifts left if stock prices rise.
B)taxes rise and shifts left if stock prices fall.
C)taxes fall and shifts left if stock prices rise.
D)taxes fall and shifts left is stock prices fall.

Question

Quizplus · Accepted Answer

An increase in taxes will reduce disposable income and thereby decrease consumption, which will shift the aggregate demand curve leftward. Similarly, if stock prices fall, the wealth of households and businesses will decrease, reducing their consumption and investment, respectively, and shifting the aggregate demand curve leftward. Therefore, the correct option is B, which combines both these factors. The other options have one or both factors incorrect.

Aggregate Demand Shifts Left If