Suppose the government increases lump sum taxes. This causes a. disposable incom

Question

Suppose the government increases lump sum taxes. This causes

a. disposable income decrease, which causes aggregate supply to decrease.

b. government spending to decrease, which causes aggregate demand to decrease.

c. disposable income to decrease, which causes consumption spending to decrease and aggregate demand to decrease.

d. consumption spending to decrease and spending on imports to increase, The effect on aggregate demand depends on whether domestic spending or spending on imports decreased the most.

Explanation / Answer

option C is correct.

from the personal income, once he the person paid taxes to government, the reamining income is called disposal income. if government increases taxes the proportionate of tax payment will be higher. and a consumer holds lesser amount of funds for his spending. it leads to decreasing in spending, causes lesser demand for goods, causes lesser production or sales.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.