Tax Cuts Would Have the Same Directional Effect on the Dynamic

question 44

Multiple Choice

Tax cuts would have the same directional effect on the dynamic aggregate demand curve as:

• A) decreases in government purchases.
• B) the Federal Reserve selling U.S. treasury securities.
• C) the Federal Reserve buying U.S. treasury securities.
• D) temporary tax increases.

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Definitions:

Demand Elasticity

A quantification of the effect of price variation on the demand level for a specific good.

Income Elasticity

A measure of how much the quantity demanded of a good or service changes in response to a change in consumers' income.

Inferior Good

A type of good whose demand decreases when consumer income rises, unlike normal goods, which see an increase in demand with rising income.

Income Elasticity

A measure of how much the quantity demanded of a good responds to a change in consumers' income.