In which of the following ways does government affect the consumption component of planned aggregate expenditures?
A)through net taxes,which change disposable income
B)by purchasing goods and services,which increase consumption
C)by using subsidies to encourage firms to invest
D)by using net taxes to encourage firms to invest
E)by producing public goods

Question

Quizplus · Accepted Answer

Government affects the consumption component of planned aggregate expenditures through net taxes, which change disposable income. Disposable income is the income that households have left after paying taxes, and it directly affects how much they are able to consume. When the government reduces net taxes, it increases disposable income, which increases consumption. Conversely, when the government increases net taxes, it reduces disposable income, which decreases consumption.

In Which of the Following Ways Does Government Affect the Consumption