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:

Rapidly

Describes something happening in a fast or quick manner.

Unemployment Rate

The concentration of individuals in the labor force who are jobless yet pursuing employment.

Employed

Refers to individuals who are currently working for pay or profit, including full-time, part-time, and temporary workers.

Cost-Push Inflation

Inflation caused by an increase in prices of inputs like labour, raw material, etc., leading to a decrease in the supply of these goods.