How do lower income taxes affect aggregate demand?
A)They increase disposable income, consumption, and aggregate demand.
B)They reduce disposable income, consumption, and aggregate demand.
C)They increase corporate investment and aggregate demand.
D)They increase aggregate supply and thus increase aggregate demand as well.
E)They reduce the price level relative to other countries, thus reducing aggregate demand.

Question

Quizplus · Accepted Answer

Lower income taxes increase disposable income, which then leads to an increase in consumption spending. This rise in consumption spending leads to an increase in aggregate demand as consumption demand is a part of aggregate demand.

How Do Lower Income Taxes Affect Aggregate Demand