Let the government increase lump-sum taxes.The aggregate demand curve will
A)shift leftward and the IS curve will shift leftward.
B)shift rightward and the IS curve will shift rightward.
C)remain unaffected but the IS curve will shift leftward.
D)become positively sloped but the IS curve will remain negatively sloped.

Question

Quizplus · Accepted Answer

An increase in lump-sum taxes will reduce disposable income, which will decrease consumption and therefore decrease aggregate demand. This will cause a leftward shift of the aggregate demand curve. The decrease in consumption will also lead to a decrease in output and investment, causing the IS curve to shift leftward as well.

Let the Government Increase Lump-Sum Taxes