Question

An income tax rate increase will most likelyaggregate demand andaggregate supply. A)increase increase B) increasedecrease decrease : decrease decreaseincrease

Answer 1

Answer: C. decrease and decrease

Explanation: Income tax is the annual taxes levied by the federal government and/or state governments on income earned by an individual or a business. Aggregate demand is the total demand for final goods and services in an economy at a particular period, while aggregate supply is the total supply of goods and services that companies in a national economy plan on selling during a specific time period.

An increase in income tax rate will reduce the income available to purchase goods nationwide which will lead to a decrease in aggregate demand of the population culminating in a decrease in aggregate supply.