If Consumers Respond to a Tax-Cut by Saving a Large

question 40

Multiple Choice

If consumers respond to a tax-cut by saving a large portion of the extra disposable income (or using it to reduce their debts) , then the tax-cut policy would

• A)shift the AE curve up significantly.
• B)shift the AE curve down.
• C)cause a reduction in aggregate spending.
• D)not have much effect on the aggregate expenditures curve.

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Definitions:

Transaction Price

The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer.

Principal/Agent

A relationship in which one party (the agent) is authorized to act on behalf of another party (the principal) in conducting transactions.

Commission

A fee paid to an agent or employee for facilitating a sale or service, typically a percentage of the sale price.

Net Basis

A method of quoting or reporting prices without including the costs of taxes, delivery, and other ancillary charges.