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.

---

Definitions:

Financing Activities

Transactions and events that affect long-term liabilities and equity of a company, reflected in the cash flows from financing section of the cash flow statement.

Operating Activities

Activities that are directly related to the day-to-day operations of a company, including sales and expenses.

Net Working Capital

The disparity between an organization's immediate assets and its short-term obligations.

Marketable Securities

Liquid financial instruments that can be quickly converted into cash at their fair market value.