Question

Which of these would MOST likely occur if the government increased taxes to build up its supply of cash

Answer 1

This is the correct answer from USAtestprep. D) Consumption of goods would decrease.

Step-by-step explanation:

Answer 2

D). Consumption of goods would decrease.

Step-by-step explanation:

As per the question, the most likely consequences of the government's increased taxation to make up its supply of cash in the market would be the 'decrease in consumption of goods' and contraction in aggregate demand.

High taxation is usually imposed by government as a part of their fiscal policy during inflation in order to and would end up in lesser disposable income, saving, and investment for the people. Thus, people would spend lesser and consequently, 'consumption of goods and services decreases'. It assists the government to reduce the flow/supply of cash in the market and bring the economy to the equilibrium. Thus, option D is the correct answer.