How Do Changes in Income Tax Policies Affect Aggregate Demand

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.