Which of the Following Would Increase Aggregate Demand

question 92

Multiple Choice

Which of the following would increase aggregate demand?

• A) a deficit in the government budget
• B) an increase in taxes
• C) an increase in government borrowing
• D) a surplus in the government budget
• E) a decrease in government spending

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Definitions:

Proportional Tax

At the individual level, a tax whose average tax rate remains constant as the taxpayer’s income increases or decreases. At the national level, a tax for which the average tax rate (= tax revenue/GDP) remains constant as GDP rises or falls.

Benefits-received Principle

The concept that the amount of taxes an individual pays should be directly proportional to the level of benefits or services they receive from the government.

Ability-to-pay Principle

A taxation principle suggesting that taxes should be levied according to an individual's or entity's ability to pay, typically measured by income or wealth.