If government increases income tax rates, the aggregate demand curve is likely to:
A) shift to the right.
B) shift to the left.
C) remain constant.
D) become positively sloped.

Question

Quizplus · Accepted Answer

When the government increases income tax rates, individuals and businesses have less disposable income to spend, which decreases consumption and investment. This leads to a decrease in aggregate demand and a leftward shift of the curve.

If Government Increases Income Tax Rates, the Aggregate Demand Curve