If the government raises taxes ________.

Question

Quizplus · Accepted Answer

When the government raises taxes, households and firms have less disposable income to spend and invest, respectively. This leads to a decrease in aggregate demand, causing a reduction in equilibrium output. Planned expenditures also fall as households and firms adjust their spending plans in response to the tax increase. These changes in aggregate demand and planned expenditures cause the IS curve to shift to the left. Therefore, all of the above options are correct.

If the Government Raises Taxes ________