**Question 5**An increase in taxes shifts the:- a. aggregate supply curve outward.- b. consumption schedule downward.- c. aggregate demand curve outward.- d. consumption schedule upward.*Note: There are no graphs or diagrams in this image.*

Answered: An increase in taxes shifts the O a.…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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the effect of taxes could be understood through the consumption function as mentioned below:

$C = c_{0} + c_{1} y_{d}$

$W h e r e, c_{0} i s a u t o n o m o u s s p e n d i n g c_{1} i s m a r g i n a l p r o p e n s i t y t o c o n s u m e y_{d} i s d i s p o s a b l e i n c o m e$

further, disposable income could further be classified as $y_{d} = Y - T$

Where Y is income and T is taxes

Now, the consumption function could be written as:

$C = c_{0} + c_{1} (Y - T)$

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