According to the traditional Keynesian approach, a tax increase lowers aggregate demand because
A) taxes are part of the C + I + G + X line.
B) disposable income available to consumers decreases.
C) taxpayers anticipate a tax increase in the future.
D) a tax cut always results in a balanced budget.

Question

Quizplus · Accepted Answer

According to the traditional Keynesian approach, disposable income available to consumers decreases when taxes are increased. This decrease in disposable income lowers consumer spending and hence lowers aggregate demand.

According to the Traditional Keynesian Approach, a Tax Increase Lowers