The short-run effect of an increase in taxes isResponsesA a leftward shift of the aggregate demand curve and movement along the inflation adjustment line.a leftward shift of the aggregate demand curve and movement along the inflation adjustment line.B a rightward shift of the aggregate demand curve and movement along the inflation adjustment line.a rightward shift of the aggregate demand curve and movement along the inflation adjustment line.C a rightward shift of the aggregate demand curve and an upward shift of the inflation adjustment line.a rightward shift of the aggregate demand curve and an upward shift of the inflation adjustment line.D a leftward shift of the aggregate demand curve and an upward shift of the inflation adjustment line.a leftward shift of the aggregate demand curve and an upward shift of the inflation adjustment line.
Question
The short-run effect of an increase in taxes isResponsesA a leftward shift of the aggregate demand curve and movement along the inflation adjustment line.a leftward shift of the aggregate demand curve and movement along the inflation adjustment line.B a rightward shift of the aggregate demand curve and movement along the inflation adjustment line.a rightward shift of the aggregate demand curve and movement along the inflation adjustment line.C a rightward shift of the aggregate demand curve and an upward shift of the inflation adjustment line.a rightward shift of the aggregate demand curve and an upward shift of the inflation adjustment line.D a leftward shift of the aggregate demand curve and an upward shift of the inflation adjustment line.a leftward shift of the aggregate demand curve and an upward shift of the inflation adjustment line.
Solution
The correct answer is A. An increase in taxes reduces disposable income, which in turn reduces consumption. This leads to a decrease in aggregate demand, which is represented by a leftward shift of the aggregate demand curve. The inflation adjustment line does not shift because it represents the relationship between the price level and real GDP, which is not directly affected by changes in taxes. Therefore, the economy moves along the inflation adjustment line as the price level adjusts to the decrease in aggregate demand.
Similar Questions
The effect of expansionary fiscal policy is shown as aMultiple Choicerightward shift in the economy's aggregate demand curve.leftward shift in the economy's aggregate supply curve.leftward shift in the economy's aggregate demand curve.movement along an existing aggregate demand curve.
The government can taxes to shift the aggregate demand curve rightward.
Which of the following will result in a rightward shift of the aggregate demand curve?ResponsesAn increase in the income tax rateAn increase in the income tax rateAn increase in exportsAn increase in exportsA decrease in the price levelA decrease in the price levelA decrease in household incomeA decrease in household incomeA decrease in government spending
When inflation decreases,ResponsesA the aggregate demand curve shifts to the right.the aggregate demand curve shifts to the right.B there is an upward movement along the aggregate demand curve.there is an upward movement along the aggregate demand curve.C there is a downward movement along the aggregate demand curve.there is a downward movement along the aggregate demand curve.D the aggregate demand curve shifts to the left.
The inflation adjustment (IA) line will move up if there is a(n)ResponsesA decrease in real GDP.decrease in real GDP.B decrease in expected inflation.decrease in expected inflation.C increase in expected inflation.increase in expected inflation.D increase in potential GDP.
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