If We Compare the Effects on Aggregate Demand of a Temporary

question 45

Multiple Choice

If we compare the effects on aggregate demand of a temporary investment tax credit for firms and a temporary income tax cut for households, we realize that

• A)a temporary income tax cut is more effective since consumption is a larger portion of aggregate demand than investment
• B)neither one will change aggregate demand significantly since in both cases permanent rather than current income is important
• C)both will change aggregate demand significantly since individuals as well as firms want to take advantage of lower taxes while they can
• D)the personal income tax cut will increase aggregate demand while the higher tax credit will lower aggregate demand
• E)temporary investment tax credits will help to simulate aggregate demand but temporary income tax cuts most likely will not