In Addition to the Multiplier and Crowding-Out Effects, a Tax

question 38

Essay

In addition to the multiplier and crowding-out effects, a tax change is a determinant of the size of the shift in the aggregate demand curve. Why would perceptions about whether the tax change is permanent or temporary affect the size of the shift?

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Definitions:

Selective Learning

The process by which individuals focus on and learn from specific aspects of their environment while ignoring others.

Internalization

The process of adopting the norms, values, or behaviours from the surrounding culture into one's own personal value system.

Commitment Level

The degree to which an individual is dedicated to a cause, activity, relationship, or job; reflecting a sense of responsibility or loyalty.

New Coke

A reformulated version of Coca-Cola introduced in 1985 that faced major consumer backlash.