CHAPTER 22 Autonomous consumer expenditure, a Change in Variable * Variable Response of Aggregate Output Y to Autonomous Changes in a, I, G, T, and NX Response of Aggregate Output, Y * TA B L E 2 - The ISLM Model 585 Yad Y ad Y ad 45 Y1 Y2 * * Investment, I Yad Y Y ad Y ad 45 Y1 Y2 * * Government spending, G Yad Y Y ad Y ad 45 Y1 Y2 * Taxes, T * Yad Y Y ad Y ad 45 Y2 Y1 * * Net exports, NX Yad Y Y ad Y ad 45 Y1 Y2 Y Note: Only increases (+) in the variables are shown; the effects of decreases in the variables on aggregate output would be the opposite of those indicated in the Response column aggregate demand function, and causes aggregate output to fall Therefore, aggregate output is positively related to government spending G A rise in taxes does not affect aggregate demand directly but does lower the amount of income available for spending, reducing consumer expenditure The decline in consumer expenditure then leads to a fall in the aggregate demand function, resulting in a decline in aggregate output A lowering of taxes makes more income available for spending, raises consumer expenditure, and leads to higher aggregate output Therefore, aggregate output is negatively related to the level of taxes T CHANGES IN TAXES ( T )