What do business taxes do to aggregate demand?
Aggregate Demand (AD) is the basis in calculating where our economy is on the spectrum. If it's to the left, then we are probably in a recession; if it is to the right, then we are probably in an expansion. The way fiscal policy works when we are in a recession is when we are trying to reduce unemployment, the government will spend more and/or reduce the taxes on individuals and businesses. Lower taxes and more money spent in the economy promotes big business which allows for more investment, leading to the AD curve to shift to the right. When the economy is in an overheat to where there is too much business that it causes the economy to become unstable, the government does contractionary fiscal policy. This policy will decrease government spending and/or raise taxes on individuals and businesses. Less money in the economy along with higher taxes will cause people to slow down on their investments, shifting the AD curve to the left.