ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A reduction in income taxes increases disposable personal income, increases consumption (but by less than the change in disposable personal income), and increases aggregate demand.

Detailed explanation-2: -when the government raises taxes, the consumers spend less, so the aggregate demand is less. But the money that was given as taxes go to the government. That means that government spending should increase.

Detailed explanation-3: -Shifting the Aggregate Demand Curve The aggregate demand curve tends to shift to the left when total consumer spending declines. 2 Consumers might spend less because the cost of living is rising or because government taxes have increased.

Detailed explanation-4: -The correct answer to the given question is option c. An increase in income taxes. An increase in income taxes leads to decrease in disposable income for consumers thereby dampening the aggregate demand for goods and services.

Detailed explanation-5: -Aggregate demand increases when the components of aggregate demand–including consumption spending, investment spending, government spending, and spending on exports minus imports–rise.