We would expect a decrease in personal and corporate income taxes to:

Question

Quizplus · Accepted Answer

Decrease in personal and corporate income taxes would leave people with more disposable income, leading to an increase in consumption spending (partially addressing B). It also incentivizes firms to invest, leading to an increase in investment spending (partially addressing D). Both consumption and investment spending are components of aggregate demand (AD), hence reducing taxes would push the AD curve rightward (partially addressing A). As a result of the increased consumption and investment spending, the equilibrium real output would increase, indicating that reducing taxes would shift the AD rightward, increase consumption and investment spending, and increase equilibrium real output (addressing E).

We Would Expect a Decrease in Personal and Corporate Income