How Do Changes in Income Tax Policies Affect Aggregate Demand

question 150

Multiple Choice

How do changes in income tax policies affect aggregate demand?

• A)Higher taxes increase disposable income, consumption, and aggregate demand.
• B)Higher taxes reduce disposable income, consumption, and aggregate demand.
• C)Higher taxes increase corporate investment and aggregate demand.
• D)Higher taxes increase aggregate supply and thus increase aggregate demand as well.
• E)Higher taxes increase government revenue, which makes consumers more confident in the future, which increases aggregate demand.

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Definitions:

Autorhythmic

Spontaneous and periodic—for example, in smooth muscle, spontaneous (without nervous or hormonal stimulation) and periodic contractions.

Cardiac Muscle

A type of involuntary striated muscle found exclusively in the heart, responsible for pumping blood throughout the body.

Skeletal Muscle

A type of striated muscle tissue that is attached to bones, enabling voluntary movement of the body through contraction and relaxation.

Smooth Muscle

A type of muscle tissue found in the walls of hollow organs (such as intestines and blood vessels) that contracts involuntarily, controlled by the autonomic nervous system.