During a Recession, Tax Cuts Are Considered Less Effective Than

question 16

Multiple Choice

During a recession, tax cuts are considered less effective than government expenditure in increasing aggregate demand because _____.

• A) governments have complete information about consumer preferences
• B) the marginal propensity to save is very low in a recession
• C) consumers tend to spend less and save more during uncertain business conditions
• D) market-based economies are the best means of allocating resources

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Definitions:

Output

The total amount of goods or services produced by a company or economy in a given period.

Production Function

A technological relationship expressing the maximum quantity of a good attainable from different combinations of factor inputs.

Inputs

Resources used in the production process, including labor, capital, materials, and energy.

Marginal Output

The additional amount of output that is produced as a result of a one unit increase in the input of a production process.