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A tax increase will shift the aggregate demand (AD) curve to the left, causing a decrease in the equilibrium price and an increase in the equilibrium output.
The Effects of Tax Increases on the Macroeconomy
The aggregate demand-aggregate supply diagram provides a useful way to analyze the macroeconomy. When the market is initially at equilibrium at point A, a tax increase will have a significant effect on the economy.
The tax increase will shift the aggregate demand (AD) curve to the left, which will cause the equilibrium price to decrease and the equilibrium output to increase. As a result, the economy will move from point A to point B, leading to a decrease in output and an increase in unemployment. This shift in the AD curve is a result of the increased cost of goods and services due to the tax increase, which will reduce consumer spending and therefore reduce aggregate demand.
Learn more about Macroeconomy at: https://brainly.com/question/3558688
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