A decrease in net taxes will result in consumption crowding out planned investment when the economy is on the steep part of the AS curve.

Question

Quizplus · Accepted Answer

When the economy is on the steep part of the Aggregate Supply (AS) curve, it is near full capacity. A decrease in net taxes increases disposable income, boosting consumption. This can lead to higher interest rates as demand for money increases, which may crowd out planned investment.

A Decrease in Net Taxes Will Result in Consumption Crowding