Question

During recessions, taxes tend to Group of answer choices fall and thereby decrease aggregate demand. rise and thereby decrease aggregate demand. rise and thereby increase aggregate demand. fall and thereby increase aggregate demand.

Answer 1

Answer:

The answer is D. fall and thereby increase aggregate demand

Explanation:

Recession is the condition of declining economic activities. The economy is contracting.

During recession, interest rates are falling, unemployment are increasing. Government decreases wages as one of the stimulus for its citizens. Decrease in wages will increase the disposable income of workers and help to cushion the effect of high prices of commodities during this period.

And because of increase in disposable income, aggregate demand increases.

And also monetary policy increases aggregate demand during recession by increasing the growth of the money supply