In a binding situation, changes in net taxes do not shift the AD curve.

Question

Quizplus · Accepted Answer

Changes in net taxes can affect consumer spending and investment, which in turn can shift the Aggregate Demand (AD) curve. A decrease in net taxes typically increases disposable income, leading to higher consumer spending and shifting the AD curve to the right. Conversely, an increase in net taxes can decrease disposable income, reduce spending, and shift the AD curve to the left.

In a Binding Situation, Changes in Net Taxes Do Not