Suppose a country increases income taxes by $100 billion, and this leads to a decrease in consumption spending of $90 billion. Suppose the multiplier is 1.5 and the economy’s real GDP is $5,000...

Suppose a country increases income taxes by $100 billion, and this leads to a decrease in consumption spending of $90 billion. Suppose the multiplier is 1.5 and the economy’s real GDP is $5,000 billion.

In which direction will the aggregate demand curve shift and by how much?

a. Explain using a graph why the change in real GDP is likely to be smaller than the shift in the aggregate demand curve.