A cut in taxes _____, shifting the aggregate demand curve to the _____.
A) decreases government transfers and consumption; right
B) increases disposable income and consumption; right
C) decreases the marginal propensity to save, increasing consumption; left
D) increases corporate profits and investment; left

Question

Quizplus · Accepted Answer

Lowering taxes increases disposable income, allowing individuals to spend more on consumption, thus shifting the aggregate demand curve to the right. Option A is incorrect because decreasing government transfers and consumption would result in lower overall spending, shifting the aggregate demand curve to the left. Option C is incorrect because decreasing the marginal propensity to save would increase spending, shifting the aggregate demand curve to the right. Option D is incorrect because while increasing corporate profits and investment may lead to economic growth, it would not directly shift the aggregate demand curve.

A Cut in Taxes _____, Shifting the Aggregate Demand Curve