In the traditional Keynesian model, if the government raises current taxes

Question

Quizplus · Accepted Answer

In the traditional Keynesian model, an increase in taxes will decrease consumption spending (C) and investment spending (I), as households have less disposable income to spend and businesses have lower profits due to decreased demand. This will shift the C + I + G + X line down (to the left) as total spending in the economy decreases. Since aggregate demand is the sum of C + I + G + X, a decrease in total spending will shift the aggregate demand curve to the left. Therefore, the correct answer is B, the C + I + G + X line will shift down and the aggregate demand curve will shift to the left.

In the Traditional Keynesian Model, If the Government Raises Current