Higher taxes affect real GDP indirectly through both the consumption channel and the output supply channel.

Question

Quizplus · Accepted Answer

Higher taxes can lead to a decrease in consumer spending, which can lead to a decrease in real GDP through the consumption channel. Additionally, higher taxes can discourage investment and innovation, leading to decreased output supply and a decrease in real GDP through the output supply channel.

Higher Taxes Affect Real GDP Indirectly Through Both the Consumption