When taxes decrease, consumption increases. How is this situation represented in the aggregate demand and aggregate supply model?
A)by a movement to the right along a given aggregate demand curve
B)by shifting aggregate demand to the right
C)by shifting aggregate supply to the right
D)by a movement to the left along the aggregate demand curve

Question

Quizplus · Accepted Answer

When taxes decrease, consumers have more disposable income, which they can use to purchase more goods and services. This leads to an increase in consumption, which shifts the aggregate demand curve to the right. Therefore, choice B (shifting aggregate demand to the right) is the correct answer.

When Taxes Decrease, Consumption Increases