An increase in net taxes
A)raises aggregate expenditure by raising disposable income,thereby increasing consumption
B)raises aggregate expenditure by raising disposable income,thereby decreasing consumption
C)lowers aggregate expenditure by lowering disposable income,thereby increasing consumption
D)lowers aggregate expenditure by lowering disposable income,thereby decreasing consumption
E)has no effect on aggregate expenditure

Question

Quizplus · Accepted Answer

Net taxes are the difference between taxes and transfer payments. An increase in net taxes would lower disposable income, which is the income remaining after taxes and transfers. Hence, disposable income and consumption will decrease, leading to a decrease in aggregate expenditure.

An Increase in Net Taxes