how does a tax cut affect the aggregate demand curve
Changes in Taxes. The two instruments of fiscal policy are government spending and taxation. A tax increase depresses consumer spending and shifts the aggregate demand curve to the left. A tax cut shifts the aggregate demand curve to the right.The size of these shifts are affected by the multiplier and crowding out effects too, but there is another factor which is important. If households perceive that the tax cut is temporary, it will have a very small impact on aggregate demand.hanges in Taxes. The two instruments of fiscal policy are government spending and taxation. A tax increase depresses consumer spending and shifts the aggregate demand curve to the left. A tax cut shifts the aggregate demand curve to the right.