Question

A cut in direct taxes on households income
a. Shifts the aggregate demand curve to the right
b. Has no effect
c. Shifts the aggregate demand curve to the left
d. Moves the economy along the aggregate demand curve

Answer 1

Answer:

c. Shifts the aggregate demand curve to the left

Explanation:

c. Shifts the aggregate demand curve to the left

Is the correct answer of this question.

As aggregate demand components—consumption spending, investment spending, government spending, and spending on exports minus imports—increase, the aggregate demand curve swings to the right.

A movement to the right in the AD curve indicates that at least one of these components rose, resulting in more overall expenditure at each price level. This is referred to as a positive demand shock.

Tax cuts on the supply side are intended to boost capital formation. If the cutbacks are successful, they will alter both aggregate demand and aggregate supply since the price level for a supply of items will be decreased, which usually results in an increase in demand for those commodities.

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