A Tax Cut Has a Smaller Impact on Aggregate Demand

question 99

Multiple Choice

A tax cut has a smaller impact on aggregate demand than an increase in government purchases of the same size because

• A)A portion of the tax cut is invested.
• B)A portion of the tax cut is saved.
• C)Tax cuts do not increase disposable income.
• D)The tax cut multiplier is equal to 1.

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Definitions:

Opportunity Costs

The cost of the next best alternative foregone as a result of making a decision.

Scarce Resources

Essential goods and services that are limited in supply relative to demand, necessitating allocation and economical usage.

Macroeconomics Question

A question that relates to the study and analysis of the economy as a whole, including issues like inflation, unemployment, and economic growth.

Constitutional Amendment

A formal change or addition proposed or made to a constitution, modifying its existing provisions or adding new ones.