An increase in taxation decreases aggregate demand and increases interest rates.
An increase in taxation will result in a decrease of aggregate demand. This is because higher taxes reduce consumers' disposable income, leading to lower spending, which in turn decreases overall demand for goods and services.
Additionally, a decrease in aggregate demand will likely increase interest rates. When demand for goods and services decreases, the overall economy slows down, leading to a higher cost of borrowing money.
Therefore, an increase in taxation will have a dual effect of lowering aggregate demand and increasing interest rates.
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Answer:
C. a decrease of aggregate demand
Explanation:
An increase in taxation typically leads to a decrease in disposable income for individuals and businesses. This reduction in disposable income tends to decrease consumer spending and investment, which in turn lowers aggregate demand.
Therefore, the correct answer is: C. a decrease of aggregate demand