Tax increases on business income decrease aggregate demand by decreasing

Question

Quizplus · Accepted Answer

Tax increases on business income decrease the amount of after-tax income available for firms to invest in new capital equipment, research and development, and other productive assets. This reduces the incentive for firms to expand their operations and hire workers, which can ultimately lead to a decrease in aggregate demand by reducing the overall level of economic activity. Tax increases on business income do not directly affect consumption spending, government spending or wage rates.

Tax Increases on Business Income Decrease Aggregate Demand by Decreasing