To Predict the Effects of a Tax Cut on Consumption

question 94

Multiple Choice

To predict the effects of a tax cut on consumption spending, economists must have some estimate of the

• A)income effect.
• B)substitution effect.
• C)relative price effect.
• D)marginal propensity to consume.

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Definitions:

Economic Concept

Fundamental ideas or principles that form the basis of economic theory and practice, such as supply and demand.

Trade-off

The compromise between two desirable but mutually exclusive outcomes in decision-making.

Opportunity Costs

The expense incurred from not choosing the next most advantageous option during decision-making.

Direct Costs

Costs that can be directly attributed to the production of a specific good or service, such as raw materials and labor.