Higher taxes lead to lower disposable income, which in turn leads to lower consumption. In addition, this leads to a decrease in investment spending by firms.

A is incorrect because if interest rates decrease and the money supply increases, the AD curve shifts to the right. Investment increases. An increase in income leads to an increase in spending. Consumers hold real money balances.

C Incorrect because the AD curve will shift to the right if businesses are operating near or at full capacity. This will lead to an increase in investment spending.