Which Theory States That a Tax Cut Does NOT Affect

question 60

Multiple Choice

Which theory states that a tax cut does NOT affect aggregate demand because people save all they gain from the tax cut?

• A) quantity theory of money
• B) inefficient market hypothesis
• C) purchasing power parity
• D) Ricardian equivalence

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Definitions:

Short-Term Investments

Financial assets that are expected to be converted into cash or sold within a year.

Seasonal Fluctuations

Variations in business activity, sales, or performance that occur regularly at certain times of the year due to the season.

Debt Securities

Financial tools that signify an investor lending money to a borrower, commonly consisting of bonds, notes, and bills.

Speculative Reasons

Motivations based on speculation where actions are taken with the expectation of future financial gains or losses.