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This article explains how the taxes in the United States have increased over the few years. If such things happen, it will make an affect on the economy’s aggregate demand curve. The AD curve will shift to the left, and this is because if the tax rate goes up, that means that there is less money for the consumers to have less disposable income, and would demand less than they used to. If the AD curve shifts to the left as shown in Figure 1, then the price levels would increase from P1 to P2, and the real GDP would decrease from Y1 to Y2. Such impact on the AD curve would be an immediate effect; however on the long term, the aggregate supply curve may also be
affected because once the AD curve shifts left, meaning that there is a fewer demand, the producers would not produce more of the goods and services, and so eventually the AS curve may also shift left. This increase in tax is a great impact on both the AD and the AS because taxes play a large role in the prices of many goods and services.