2 An increase in taxes E Initially,the tax E=Y increase reduces E=C++G consumption,and E=C2+I+G therefore E: △C=-MPC△T At Yu,there is now an unplanned .so firms inventory buildup. reduce output, and income falls Y toward a new equilibrium E=Y △Y E=Y CHAPTER 10 Aggregate Demand I slide 17CHAPTER 10 Aggregate Demand I slide 17 An increase in taxes Y E E =C2 +I +G E2 = Y2 E =C1 +I +G E1 = Y1 Y At Y1 , there is now an unplanned inventory buildup. .so firms reduce output, and income falls toward a new equilibrium C = −MPC T Initially, the tax increase reduces consumption, and therefore E: 2