Suppose that higher taxes on businesses reduce spending on plant and equipment. How will this affect the aggregate expenditure (AE) and the aggregate demand (AD) schedules?A

A) AE shifts down; AD shifts to the left
B) AE shifts down; AD shifts to the right
C) AE shifts up; AD shifts to the left
D) AE shifts up; AD shifts to the right

ANSWER:

A) AE shifts down; AD shifts to the left