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The government raises income taxes. How might this impact the economy from a microeconomic & macroeconomic...

The government raises income taxes. How might this impact the economy from a microeconomic & macroeconomic perspective?   

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Answer #1

Ans) Microeconomics is concerned with individual entity or market. While macroeconomics is concerned with economy as a whole.

When there is an increase in income tax, demand of the consumers will decrease as they will have less money to spend. And demand curve will shift to the left. As a result both price and quantity will decrease.

Whereas, an increase in income tax will decrease the aggregate demand and aggregate demand curve will shift to the left. As a result, price level and output will decrease.

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